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Operations-Fixed Deposit
Account
• With CBS banks can tally FD holding of a customer
across various branches and TDS is applied if interest
exceeds Rs 10,000
• Banks issue Form 16 A every quarter to the customer,
as a receipt for Tax Deducted at Source.
• If the total income for a year does not fall within the
overall taxable limits, then customers can submit a
– Form 15 G (below 60 years of age) or
– Form 15 H (above 60 years of age) to the bank
• when starting the FD and at the start of every financial
year to avoid TDS.
Operations-Recurring Deposit
Account
• Recurring Deposit is a special kind of Term
Deposit offered by banks in India
• which help people with regular incomes
to deposit a fixed amount every month into
their Recurring Deposit account and
• earn interest at the rate applicable to Fixed
Deposits.
• Another variant for investment
• Also knows as RD or cumulative deposit.
Operations-Recurring Deposit
Account
• It is similar to making FDs of a certain amount in
monthly installments,
– for example Rs 1000 every month.
• This deposit matures on a specific date in the future
along with all the deposits made every month.
• Thus, Recurring Deposit schemes allow customers with
an opportunity to build up their savings
through regular monthly deposits of fixed sum over a
fixed period of time.
• Minimum Period of RD is 6 months and maximum is
10 years
Operations-Recurring Deposit
Account
• The Recurring Deposit can be funded by
[Standing order (banking)|Standing
instructions] which are the instructions by the
customer to the bank to withdraw a certain sum of
money from his Savings/ Current account and
credit to the Recurring Deposit every month.
• When the RD account is opened, the maturity
value is indicated to the customer assuming that
the monthly installments will be paid regularly on
due dates](https://image.slidesharecdn.com/fabi-230225002803-9c89199e/85/FAB-I-pdf-30-320.jpg)
FAB I.pdf
- 1. 1 BBAE0402 : FUNCTIONAL ASPECTSOF BANKING Prashant Tiwari Assistant Professor Institute of Business Management GLA University, Mathura 1 Syllabus: Module 1 • Banker & Customer: • Banking in India, Definition & Roles of Banks, Banking Services & Products. • Operational Aspect of commercial banks in India, • Organisation of Banking Business – – Types of Banks, – Relationship of Banker & Customer as Debtor–Creditors, – Know Your Customer (KYC) guidelines. – Pledgee–Pledgor,Agent-Principles & Lessor-Lessee. Syllabus: Module 1 • Customers’ Accounts: • Opening & Operations of Different Kinds of Bank Accounts & their Special Features – – Saving Account, Current Account, Fixed Deposit Account, Recurring Deposit Account and other Accounts – Closing of Bank Account. • RBI & its role. • Recovery of loan- legal process and RBI guidelines. • Types of cheques- – drawing-alteration-marking and crossing of cheques. • How to apply for loan, documents required, eligibility, calculation of EMI, concept of credit score Introduction to Bank • What is Bank? • Concept of Bank • Banking • Banker • Customer 4
- 2. 2 HISTORY OF ‘BANK’ 5 HISTORYOF ‘BANK’ 6 • The word bank was taken – Middle English from Middle French banque, from Spanish banca, – from Old Italian banca, meaning "table", – from Old High German banc, bank "bench, counter". – Another German word, “ Bankon”- a joint stock fund. – Also a heap ( or mountain) and it indicates towards a joint fund collected by many persons. BANK • A bank is a company where money can be saved or borrowed from. • Banks also invest money to build up their reserve of money. • What they do is regulated by laws. Those laws differ in different countries. • The people who run a bank are called bankers. 7 BANK • Other banks deal with investments and international currency trading. • Customers' money may be placed in the bank for safe keeping. • Banks may give loans to customers for an agreement to pay the bank back at a later time, with interest. 8
- 3. 3 BANKER • A personemployed by a bank, especially as an executive or other official. • An individual who is engaged in the business of banking • A banker is one engaged in the business of receiving other persons money in deposit, to be returned on demand discounting other persons' notes, and issu ing his own for circulation. • One who performs the business usually transacted by a bank. 9 Customer of the bank • For a bank, a customer is a person who is utilizing one or more of the services provided by the bank. • A customer is a person through whom the bank gets an opportunity to make an earning in return to the service they can provide the customer with. – For Ex: an individual who has a checking account with a bank or an individual who has a mortgage or a loan with the bank or an individual who has a fixed deposit with the bank are all customers of the bank. 10 Meaning & Concept • A bank is a financial intermediary that – accepts deposits and channels those deposits into lending activities, – either directly by loaning or indirectly through capital markets. • A banker is a person or company carrying on the financial business like – receiving of money from public for the purpose of lending or investment and – repay when it is demanded by them. 11 Meaning & Concept • A place for the deposit of money. • An institution, generally incorporated, authorized to receive deposits of money, to lend money, and to issue promissory notes, usually known by the name of bank notes. 12
- 4. 4 Definition- Banking • "banking"means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or other wise; -Banking Regulation Act, 1949. 13 Definition- Banking • "banking" means – the accepting , – for the purpose of lending or investment, – of deposits of money from the public, – repayable on demand or otherwise, – and withdrawal by cheque, draft, order or other wise. – Banking Regulation Act, 1949. 14 Ingredients of Banker On the basis of banking regulation act 1949,any institution that fulfill the following condition must be treated as banker or bank, these are as follows:- 1.Two mandatory functions must be performed • Acceptance of deposits • Lending and investment of such deposits 15 Ingredients of Banker 2.Deposits of money payable on demand 3.Withdrawl of money through cheque Draft, order or otherwise. 16
- 5. 5 Banking in India •Banking in India in the modern sense originated in the last decades of the 18th century. • Among the first banks were the – Bank of Hindustan, which was established in 1770 and liquidated in 1829-32; – and the General Bank of India, established 1786 but failed in 1791 • The largest bank, and the oldest still in existence, is the State Bank of India 17 Banking in India • It originated as the Bank of Calcutta in June 1806. • In 1809, it was renamed as the Bank of Bengal. • This was one of the three banks funded by a presidency government, the other two were the Bank of Bombay and the Bank of Madras. • The three banks were merged in 1921 to form the Imperial Bank of India, • which upon India's independence, became the State Bank of India in 1955 18 Banking in India • In 1960, the State Banks of India was given control of state-associated banks under the State Bank of India (Subsidiary Banks) Act, 1959. • These are now called its associate banks – State Bank of Bikaner & Jaipur – State Bank of Hyderabad – State Bank of Mysore – State Bank of Patiala – State Bank of Travancore –Now these banks have been merged into SBI (dated – 1 April, 2017) 19 20
- 6. 6 Banking in India •In 1969 the Indian government nationalized 14 major private banks. • In 1980, 6 more private banks were nationalized. • These nationalized banks are the majority of lenders in the Indian economy. • They dominate the banking sector because of their large size and widespread networks 21 Indian Banking System- at Glance 22 Role of Banks • Mobilizing Saving for Capital Formation • Financing Industry • Financing Trade • Financing Agriculture • Financing Consumer Activities • Financing Employment Generating Activities • Help in Monetary Policy 23 Mobilizing Saving for Capital Formation • The commercial banks help in mobilising savings through network of branch banking. • People in developing countries have low incomes but the banks induce them to save by introducing variety of deposit schemes to suit the needs of individual depositors. 24
- 7. 7 Financing Industry • Thecommercial banks finance the industrial sector in a number of ways. • They provide short-term, medium-term and long-term loans to industry. • In India they provide short-term loans. • In India, the commercial banks undertake short-term and medium-term financing of small scale industries, and also provide hire- purchase finance. 25 Financing Trade • The commercial banks help in financing both internal and external trade. • The banks provide loans to retailers and wholesalers to stock goods in which they deal. • They also help in the movement of goods from one place to another by providing all types of facilities such as – discounting and accepting bills of exchange, – providing overdraft facilities, – issuing drafts, etc. 26 Financing Agriculture • The commercial banks help the large agricultural sector in developing countries in a number of ways. • They provide loans to traders in agricultural commodities. • They open a network of branches in rural areas to provide agricultural credit. • They provide finance directly to agriculturists for the – marketing of their produce, – for the modernization and – mechanization of their farms, – for providing irrigation facilities, – for developing land, etc. 27 Financing Consumer Activities • People in underdeveloped countries being poor and having low incomes do not possess sufficient financial resources to buy durable consumer goods. • The commercial banks advance loans to consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc • In this way, they also help in raising the standard of living of the people in developing countries by providing loans for consumptive activities. 28
- 8. 8 Financing Employment Generating Activities •The commercial banks finance employment generating activities in developing countries. • They provide loans for the education of young person’s studying in engineering, medical and other vocational institutes of higher learning. • They advance loans to young entrepreneurs, medical and engineering graduates, and other technically trained persons in establishing their own business 29 Help in Monetary Policy • The commercial banks help the economic development of a country by faithfully following the monetary policy of the central bank. • In fact, the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy. 30 Conclusion • Thus, the commercial banks contribute much to the growth of a developing economy by • granting loans to agriculture, • trade and industry, • by helping in physical and • human capital formation and • by following the monetary policy of the country. 31 32
- 9. 9 FUNCTIONS OF COMMERCIAL BANK •Primary Functions : These functions are mandatory on the parts of commercial banks to be performed : – Accepting deposits (Demand & Time deposits) • Savings & Current Accounts ( Demand Deposits ) • FDs & RDs (Time deposits ) etc – Lending and investments( loans and advances) • Home loans, Auto Loans, Personal Loans etc (Loans) • Cash Credit, OD account, Discounting of bills etc.(Advances) 33 34 FUNCTIONS OF COMMERCIAL BANK • Secondary Functions : These functions are not mandatory , but may go for offering these services to their customers. – General or Utility functions: in order to provide several other kinds of services • Safe keeping of valuables( Locker facility) • Arranging foreign exchange • Issuing of credit instruments • Discounting of bills and exchange of Hundis. 35 FUNCTIONS OF COMMERCIAL BANK • Secondary Functions : These functions are not mandatory , but may go for offering these services to their customers. – Agency functions : when bankers are acting on behalf of their customers. • Collecting and receiving payments • Buying and selling of securities on customers’ behalf. • Acting as trustees( also Trustee functions ) 36 FUNCTIONS OF COMMERCIAL BANK • Other ancillary services : – Providing informative services such as advising , issuing credit instruments. – Standing as a guarantor. – Issuing credit instruments such as credit cards, letters of credit etc – Issuing gift cheque and cards. – Underwriting of shares and debentures. – Clearing house services etc
- 10. 10 Difference between Primary andSecondary Functions Primary Functions Secondary Functions • These are the main Secondary Activities of the activities of the bank bank • Main sources of income Not the main source of income • These are obligatory on These are not obligatory part of bank to perform on the part of bank 37 Organization-Types of Banks • There are various types of banks in India that attempt – to meet the financial requirements of different people belonging to different categories. • These categories can be differentiated on the basis of – industries ,demographic characteristics of people, – occupation or professions of people, etc. • Banks in India can be – Scheduled Banks and – Unscheduled Banks as shown in the picture below: 38 Indian Banking System- at Glance 39 Organization-Types of Banks 40
- 11. 11 Organization-Types of Banks 41 Organization-Typesof Banks 42 Organization-Types of Banks 43 RBI-Introduction • The Reserve Bank of India is India's central banking institution, – which controls the monetary policy of the Indian rupee. • It commenced its operations on 1 April 1935 during the British Rule in accordance with the provisions of the Reserve Bank of India Act 1934. • The RBI plays an important part in the Development Strategy of the Government of India. • It is a member bank of the Asian Clearing Union. 44
- 12. 12 RBI-Introduction • The generalsuperintendence and direction of the RBI is entrusted with the 21-member Central Board of Directors: – The Governor , – 4 Deputy Governors, – 2 Finance Ministry representatives, – 10 government-nominateddirectors to represent important elements from India's economy, – 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. • Each of these local boards consists of 5 members who represent regional interests, and the interests of co-operative and indigenous banks. 45 SCHEDULED BANKS • The Scheduled Banks are defined as “banks included in the second schedule of Reserve Bank of India (RBI) act, 1934 that consists on criteria laid down vide section 42 (6) (a) of the act – • Paid-up capital and reserves of at least Rs 5 lakh (Rs 0.5 million) • Affairs not conducted in a prejudicial manner to the interests of its depositors” 46 Scheduled Commercial Banks • Scheduled Commercial Banks (SCBs) as the term states are financial institutions or banks that cater to commercial needs of their customers. • There are four types of SCBs – – Public sector banks, – Private sector banks, – Foreign banks and – Regional Rural Banks (RRBs). 47 Scheduled Commercial Banks • Public sector banks – have majority of stake (share capital) held by the Government or RBI, • Private sector banks – have majority of their stake held by private individuals and are registered as companies with limited liability, whereas • Foreign banks – are registered banks with headquarters in a foreign country but operate through their branches in India • Regional Rural Banks – Are Government owned scheduled banks of India that operate at regional level in different states of the country – Are under the ownership of Ministry of Finance, GOI. – Were created to serve rural areas with basic banking and financial services. 48
- 13. 13 Scheduled Commercial Banks •Public sector banks – SBI, Bank of Baroda, Canara Bank, Dena Bank, etc • Private sector banks – HDFC Bank, ICICI Bank , Yes bank, Kotak Mahindra Bank, etc • Foreign Banks – Standard & Chartered Bank, Hong Kong and Shanghai Banking Corporation (HSBC) Citibank, Bank of America, etc • Regional Rural Banks (RRBs) – Chaitanya Godavari Grameen Bank (sponsor Andhra Bank), Maharashtra Grameen Bank (sponsor Bank of Maharashtra), Haryana Grameen Bank (sponsor Punjab National Bank), etc. 49 Organization of Banks 50 Cooperative Banks 51 • Cooperative banks are scheduled banks that are registered under the Cooperative Societies Act and are regulated by RBI’s Banking Regulation Act of 1949. • These are mostly credit-based institutions in rural and urban areas that mostly cater to different types of businesses and conduct most of the secondary functions of SCBs. • Cooperative banks have unique ownership structure which is based on cooperative systems where like-minded individuals or companies representing a particular sector or industry invest their money in a bank for providing credit to small medium or large businesses Cooperative Banks 52 • Cooperative banks supply credit to large number of industries or sectors in rural areas such as farming, cattle-rearing, milk production, personal finance, hatchery, etc. • They provide credit in urban areas to businesses in various industries for distribution or marketing, housing, warehousing, textiles, dairy, sugar, etc
- 14. 14 Are cooperative banks governmentbanks? 53 • The cooperative bank is also regulated by the RBI. They are governed by the Banking Regulations Act 1949 and Banking Laws (Co- operative Societies) Act, 1965. • These banks provide most services such as savings and current accounts, safe deposit lockers, loan or mortgages to private and business customers How does a cooperative bank work? 54 • These banks are traditionally centered around communities, localities and work place groups and they essentially lend to small borrowers and businesses. ... They are governed by the Banking Regulations Act 1949 and Banking Laws (Co-operative Societies) Act, 1965 Structure of co-operative banking 55 • The co-operative banking structure in India is divided into following main 5 categories: • Primary Urban Co-op Banks • Primary Agricultural Credit Societies • District Central Co-op Banks • State Co-operative Banks • Land Development Banks We may distinguish between co-operative banks and commercial banks on the following counts: 56 • Commercial banks are joint-stock banks. Co- operatives banks, on the other hand, are co- operative organizations. • Commercial banks are subject to the control of the Reserve Bank of India directly. Co- operative banks are subject to the rules laid down by the Registrar of Co-operative Societies.
- 15. 15 We may distinguishbetween co-operative banks and commercial banks on the following counts: 57 • Co-operative banks have lesser scope in offering a variety of banking services than commercial banks.Commercial banks in India are on a larger scale. They have adopted the system of branch banking, so they have countrywide operations. • Co-operative banks are relatively on a much smaller scale. Many co-operative banks follow only unit-bank system, though there are cooperative banks with a number of branches but their coverage is not countrywide. We may distinguish between co-operative banks and commercial banks on the following counts: 58 • Commercial banks in India are of two types: (i) public sector banks and (ii) private sector banks.Co-operative banks are private sector banks. • Commercial banks mostly provide short-term finance to industry, trade and commerce, including priority sectors like exports, etc. • Co-operative banks usually cater to the credit needs of agriculturists. We may distinguish between co-operative banks and commercial banks on the following counts: 59 • Co-operative banks offer a slightly higher rate of interest to their depositors than commercial banks. • In co-operative banks, borrowers are member shareholders, so they have some influence on the lending policy of the banks, on account of their voting power. • Borrowers of commercial banks are only account- holders and have no voting power as such, so they cannot have any influence on the lending policy of these banks. • Co-operative banks have not much scope of flexibility on account of the rigidities of the bye-laws of the Co- operative Societies. Commercial banks, on the other hand, are free from such rigidities. NON-SCHEDULED BANKS 60 • Non-Scheduled banks are banks not included in the second schedule of RBI act and have paid-up capital and reserves less than Rs 5 lakh. • These banks are the opposite of Scheduled Banks and act like private limited companies with limited benefits (or protection) from RBI. • Non-scheduled banks comprise Local Area Banks (LABs) that provide credit to individuals or businesses locally. • For example, Coastal Area Bank or Coastal bank is a private bank established under the Companies Act and approved by RBI as a LAB, headquartered in Vijaywada, Andhra Pradesh.
- 16. 16 ; BANKER CUSTOMER RELATIONSHIP • Thegeneral relationship of the Banker – Customer can be divided into – Debtor & Creditor – Agent & Principal – Pledgee & Pledger – Lessor & Lessee – Advisor & Client – Other Relationships 63 Debtor and Creditor • In case of loan / advance accounts, – banker is the creditor, and the customer is the debtor • because the customer owes money to the banker. • The banker can demand the repayment of loan / advance on the due date, and the customer has to repay the debt. • A customer remains a creditor until there is credit balance in his account with the banker. • A customer (creditor) does not get any charge over the assets of the banker (debtor). • The customer's status is that of an unsecured creditor of the banker. 64
- 17. 17 • When acustomer opens an account with a bank and if the account has a credit balance, then the relationship is that of – debtor (banker / bank) and creditor (customer). • In case of savings / fixed deposit / current account (with credit balance), the banker is the debtor, and the customer is the creditor. • This is because the banker owes money to the customer. • The customer has the right to demand back his money whenever he wants it from the banker, and the banker must repay the balance to the customer. 65 Debtor and Creditor The debtor-creditor relationship of banker and customer differs from other commercial debts in the following ways: 1. The creditor (the customer) must demand payment. On his own, the debtor (banker) will not repay the debt. However, in case of fixed deposits, the bank must inform a customer about maturity. 2. The creditor must demand the payment at the right time and place. – The depositor or creditor must demand the payment at the branch of the bank, where he has opened the account. – However,today, some banks allow payment at all their branches and ATM . 66 – The depositor must demand the payment at the right time (during the working hours) and on the date of maturity in the case of fixed deposits. – Today, banks also allow pre-mature withdrawals. 3. The creditor must make the demand for payment in a proper manner. – The demand must be in form of cheque, withdrawal slips, or pay order. – Now-a-days,banks allow e-banking, ATM, mobile-banking, etc. 67 The debtor-creditor relationship of banker and customer differs from other commercial debts in the following ways: Pledgee– Pledger • The relationship between customer and banker can be that of Pledger and Pledgee. • This happens when customer pledges (promises) certain assets or security with the bank in order to get a loan. • In this case, the customer becomes the Pledger, and the bank becomes the Pledgee. • Under this agreement, the assets or security will remain with the bank until a customer repays the loan. 68
- 18. 18 Rights of Bankeras Pledgee • Right to retain the pledged goods. • Right to recover extraordinary expenses incurred by banker during pledge. • Right of sale in case of default by pledgor 69 • Duty not to use the pledged goods. • Duty to return the goods after fulfillment of purpose. • Duty to proper care of goods. • Duty not mix goods with other goods. 70 Duties of Banker as Pledgee Agent-Principal (Agency Functions ) • The banker acts as an agent of the customer (principal) by providing the following agency services: – Buying and selling securities on his behalf, – Collection of cheques, dividends, bills or promissory notes on his behalf, and – Acting as a trustee, attorney, executor, correspondent or representative of a customer. • Banker as an agent performs many other functions such as payment of insurance premium, electricity and gas bills, handling tax problems, etc. 71 Lease - Contract • A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. • Broadly put, a lease agreement is a contract between two parties, the lessor and the lessee. • The lessor is the legal owner of the asset, the lessee obtains the right to use the asset in return for rental payments 72
- 19. 19 Lessor-Lessee • The narrowerterm rental agreement can be used to describe a lease in which the asset is tangible property • Language used is that the user rents the land or goods let or rented out by the owner. • In case of locker operation, the relationship between the banker and customer is lessor-lessee. • Here the banker is Lessor and customer is Lessee. 73 KYC- Concept • KYC means Know Your Customer • KYC or KYC check – is the mandatory process of identifying and verifying the identity of the client when opening an account and periodically over time. • In other words, banks must make sure that their clients are genuinely who they claim to be. • Banks may refuse to open an account or halt business relationship – if the client fails to meet minimum KYC requirements. KYC- Concept • KYC documents – KYC checks are done through an independent and reliable source of documents, data, or information. – Each client is required to provide credentials to prove identity and address. • What is eKYC? – In India, Electronic Know Your Customer or eKYC is a process, wherein the customer's identity and address are verified electronically through Aadhaar authentication. 75 KYC-Importance • KYC procedures defined by banks involve all the necessary actions to make sure – their customers are real, assess, and monitor risks. • These processes help prevent and identify – money laundering, – financing terrorism, and other illegal corruption schemes. • Based on RBI guidelines, – Bank may ask for Re-KYC at specific intervals to keep the records of the Bank updated.
- 20. 20 • The objectiveof KYC guidelines is to prevent banks from being used, intentionally or unintentionally by criminal elements for money laundering activities. • Therefore key elements : – Customer acceptance policy – Customer Identification Process – Monitoring of transactions – Risk management KYC- Know Your Customer Customer Acceptance Policy • No account is opened in anonymous or fictitious/benami name(s) • Banks should clearly define the parameters of risk associated with the customer profile – Low , medium or high risk customers • Documents and other information should be collected of customers as per profile. • Not to open or close an existing account if the bank is unable to apply appropriate customer due diligence. • Necessary checks should be carried on to ensure that the identity of the customer does not match with any person with known criminal background or with banned entities such as terrorists etc. Customer Identification Process • Identifying and verifying customers identity – By using reliable , independent source documents data or info • For customers that are legal persons /entities bank should verify the – Legal status ( through documents ) – Authorized party if so (authorized or not) – Understanding the ownership and control structure of entity Monitoring of Transactions • Identifying the abnormal and suspicious transactions • Special attention to all complex usually large transactions accounts. • Large cash transactions inconsistent with the normal activity of the customer • LTR ( large transactions reporting ) to be maintained in separate registers so that data can be maintained by the head fortnightly.
- 21. 21 Risk Management • Creationof risk profiles of the customers. • Application of anti-money laundering measures • Audit machinery should be staffed adequately with individuals as per banks policies and procedures. • Concurrent / internal auditors should specifically check and verify the application of KYC procedures. Procedure and precaution for opening an account- 7 steps 1. Decide the Type of BankAccount you want to Open • There are several types of bank accounts such as Saving Account, Recurring Account, Fixed Deposit Account and Current Account. • So a decision regarding the type of account to be opened must be taken. 2. Approach any Bank of choice & meet its Bank Officer • Once the type of account is decided, the person should approach a convenient bank. • He has to meet the bank officer regarding the opening of the account. The bank officer will provide a proposal form (Account Opening Form) to open bank account. 3.Fill up BankAccount Opening Form - Proposal Form • The proposal form must be duly filled in all respects. Necessary details regarding name, address, occupation and other details must be filled in wherever required. Procedure and precaution for opening an account- 7 steps • Two or three specimen signatures are required on the specimen signature card. If the account is opened in joint names, then the form must be signed jointly. • Now a days the banks ask the applicant to submit copies of his latest photograph for the purpose of his identification. 4. Give References for Opening your Bank Account • The bank normally required references or introduction of the prospective account holder by any of the existing account holders for that type of account. • The introducer introduces by signing his specimen signature in the column meant for the purpose • The reference or introduction is required to safeguard the interest of the bank. Procedure and precaution for opening an account- 7 steps 5.Submit Bank Account Opening Form and Documents • The duly filled in proposal form must be submitted to the bank along with necessary documents. • For e.g. in case of a joint stock company, the application form must accompany with the Board's resolution to open the account. • Also certified copies of articles and memorandum of association must be produced. 6.Officer will verify your Bank Account Opening Form • The bank officer verifies the proposal form. He checks whether the form is complete in all respects or not. • The accompanying documents are verified. • If the officer is satisfied, then he clears the proposal form. Click here to see the AOF ......banking books &forms(FD, RD, Savings , RTGS NEFT)Final_Aof_revised.pdf
- 22. 22 Procedure and precautionfor opening an account- 7 steps 7.Deposit initial amount in newly opened Bank Account • After getting the proposal form cleared, the necessary amount is deposited in the bank. • After depositing the initial money, the bank provides a pass book, a cheque book and pay in slip book in the case of savings account. In the case of fixed deposits, a fixed deposit receipt is issued. • In the case of current account, a cheque book and a pay in slip book is issued. • For recurring account, the pass book and a pay in slip book is issued. Operations-Savings Deposit Account • These deposits accounts are one of the most popular deposits for individual accounts. • These accounts not only provide cheque facility but also have lot of flexibility for deposits and withdrawal of funds from the account. • 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. Operations-Savings Deposit Account • However, banks have every right to enforce such restrictions if it is felt that the account is being misused as a current account. • Till 24/10/2011, the interest on Saving Bank Accounts was regulated by RBI and it was fixed at 4.00% on daily balance basis. • However, wef 25th October, 2011, RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI. Operations-Savings Deposit Account • Under directions of RBI, now banks are also required to open no frill accounts – (this term is used for accounts which do not have any minimum balance requirements). • Although Public Sector Banks still pay only 4% rate of interest, some private banks like Kotak Bank and Yes Bank pay between 6% and 7% on such deposits. • From the FY 2012-13, interest earned upto Rs 10,000 in a financial year on Saving Bank accounts is exempted from tax.
- 23. 23 Operations-Savings Deposit Account • Restrictionson withdrawal – At max 5 transactions in a month are allowed or 60 per year. – Rest charges will be levied by the banks. – Rs.1 Or in multiples of 1. • Restrictions of deposits – Amount subject to a minimum of Rs. 5 – banks has to ensure that account should not be used as a current account. Operations-Savings Deposit Account • Restriction on opening savings account – Government departments – Municipal corporations/ committees – Panchayat samities – State housing boards – State/ district level housing cooperative societies etc. • AMB( Average Monthly Balance) – Customer needs to maintain minimum amount in account – To avoid AMB in the account Operations-Savings Deposit Account The amount can be deposited in cash or cheques can be deposited for collection through clearing with the help of deposit slips. To see deposit slip click here ......banking books &forms(FD, RD, Savings , RTGS NEFT)HDFC_Slip_12611020000753.pdf • No frills bank account – This account aims at providing normal banking services to all citizens of the country. – The basic savings account replaces the earlier “no- frills”account, which came with nil or minimum charges and was meant for the low-income group. Savings Bank Accounts Rules & Regulations • As per the extant Reserve Bank of India (RBI) guidelines, which are mandatory, photographs of all applicant(s) / Power of Attorney holders (i.e. who are authorized to operate the account(s)) should be furnished to the bank • As per extant Government of India (GOI) guidelines, PAN / Form No.60/61 (Where PAN is not available) is required to be furnished. • Click here for FORM 61 • ......banking books &forms(FD, RD, Savings , RTGS NEFT)form 61.docx
- 24. 24 Savings Bank Accounts Rules& Regulations • The balance in the special type of account must adhere to the minimum monthly / quarterly average balance stipulation laid down by the Bank and communicated to you at the time of opening of the account. • Non-maintenance of such monthly/quarterly average balance (QAB/AMB) will attract applicable penalty on a monthly / quarterly basis and on a date determined by the bank. Savings Bank Accounts Rules & Regulations • If there is no transaction by the account holder in the account continuously for 24 months, the account automatically gets classified as a ‘dormant / inoperative account’ whereupon further debit / credit transactions are not permitted in the ordinary course. • A request for activation of the account has to be made by the customer and the customer is subject afresh to KYC Compliance. Savings Bank Accounts Rules & Regulations • When a customer wants his / her operative account at one branch to be transferred to another branch, he / she has to give his / her request in writing along with unused cheque books. The bank will transfer the account to other branch and will issue new cheque book. • The bank has the authority to debit the accounts to recover any amount credited erroneously. • Interest will be credited every six months on or about 1st September and 1st March calculated on daily product basis. 10-year-olds can open and operate bank account alone: RBI • Children older than 10 years will no longer need the help of their parents or guardians to open and operate a savings bank account. • To boost financial inclusion, the Reserve Bank of India (RBI) on Tuesday 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 to operate bank accounts only along with a parent or a guardian. • All children and teenagers below the age of 18 are considered minors under current rules.
- 25. 25 10-year-olds can openand operate bank account alone: RBI • RBI also allowed banks to offer additional facilities like internet banking, ATM, debit card and cheque book to a minor. • However, the central bank said that such facilities should be within the overall norms that banks will not allow a minor's account to be overdrawn and that these accounts should always remain in credit. Operations-Current Deposit Account • Current Accounts are basically meant for businessmen and are never used for the purpose of investment or savings. • These deposits are the most liquid deposits and there are no limits for number of transactions or the amount of transactions in a day. • Most of the current account are opened in the names of firm / company accounts. • Cheque book facility is provided and the account holder can deposit all types of the cheques and drafts in their name or endorsed in their favour by third parties. Operations-Current Deposit Account • No interest is paid by banks on these accounts. • On the other hand, banks charges certain service charges, on such accounts. • an account with a bank from which money may be withdrawn without notice, – typically an active account catering for frequent deposits and withdrawals by cheque. Operations-Current Deposit Account • The main objective of Current Account holders in opening these account is to enable them (mostly businessmen) to conduct their business transactions smoothly. • There are no restrictions on the number of times deposit in cash / cheque can be made or the amount of such deposits;
- 26. 26 Operations-Current Deposit Account • Usuallybanks do not have any interest on such current accounts. However, in recent times some banks have introduced special current accounts where interest (as per banks' own guidelines) is paid • The current accounts do not have any fixed maturity as these are on continuous basis accounts Operations- WHO CAN OPEN A CURRENT ACCOUNT • Different banks have different criteria for opening a current account. • Generally, banks would only consider the application if the applicant is: - – 18 years old or above – – not a bankrupt – – of sound mind and has the mental and physical capacity to operate the account properly • For business owners and professional entities, they must ensure that they are properly registered with the relevant authorities. • However, a bank has the discretion to accept or decline an application to open the account. REQUIREMENTS TO OPEN A CURRENTACCOUNT • You must be physically present at the bank – • You need an introducer acceptable to the bank. • This is to enable the bank to obtain references on you. • You need to provide certain identification documents such as your identity card or driving licence to substantiate your identity – • You need to put an initial deposit as specified by your bank REQUIREMENTS TO OPEN A CURRENTACCOUNT • In addition, for a business / society / club / association / professional registered with professional bodies (ICAI, Indian Medical Association etc), • you need to provide the – business registration, – board resolution, memorandum and articles of association, – share allotment form and list of directors and secretary (for company account) or – list of current board/committee members (for society account).
- 27. 27 Introduction-Fixed Deposit Account • Afixed deposit (FD) is a financial instrument provided by banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date. • It may or may not require the creation of a separate account. • It is known by different terms such as term deposit or time deposit in different countries. Introduction-Fixed Deposit Account • A Fixed Deposit (FD) involves depositing a fixed amount with a bank for a fixed period of time and for a fixed rate of interest. • The depositor receives interest on a monthly, quarterly or annual basis for the fixed tenure. • Post that, the principal amount is returned to the customer. • Some banks may offer additional services to FD holders such as loans against FD certificates (OD against FD) at competitive interest rates Introduction-Fixed Deposit Account • Fixed deposits are a high-interest -yielding Term deposit which are offered by banks in India. • The most popular form of Term deposits are Fixed Deposits, while other form of term Deposits is Recurring Deposit(RD). • The interest rate varies between 3.5 and 11 percent. – Senior citizens are given 0.5 % higher rate of return • The tenure of an FD can vary from 7, 15 or 45 days to 1.5 years and can be as high as 10 years. Operations-Fixed Deposit Account • The longest permissible term for FDs is 10 years • Generally, the longer the term of deposit, higher is the rate of interest but a bank may offer lower rate of interest for a longer period. • Usually in India the interest on FDs is paid every three months from the date of the deposit. – if FD was opened on 15th Feb., – first interest installment would be paid on 15 May
- 28. 28 Operations-Fixed Deposit Account Click hereto see the latest Interest Rates : https://www.hdfcbank.com/personal/interest-rates?accordname=accordian2 Operations-Fixed Deposit Account • The interest is credited to the customers' Savings bank account or sent to them by cheque. This is a Simple FD . • The customer may choose to have the interest reinvested in the FD account. This deposit is called the Cumulative FD or compound interest FD or reinvestment FD. • For such deposits, the interest is paid with the invested amount on maturity of the deposit at the end of the term. • For calculation of FD interest click here : https://www.hdfcbank.com/personal/fixed-deposit- calculator Operations-Fixed Deposit Account • FDs are booked for fixed tenure but customers can liquidate the FDs before maturity. This is known as a premature withdrawal of FDs. • In such cases, interest is paid at the rate applicable at the time of withdrawal minus 1 % as penalty. – For example, a deposit is made for 5 years at 8%, – but is withdrawn after 2 years. – If the rate applicable on the date of deposit for 2 years is 5 per cent, the interest will be paid at 4 per cent. • Banks charge a penalty for premature withdrawal Operations-Fixed Deposit Account • Banks issue a separate receipt for every FD because each deposit is treated as a distinct contract. • This receipt is known as the Fixed Deposit Receipt (FDR), that has to be surrendered to the bank at the time of renewal or encashment. • Many banks offer the facility of automatic renewal of FDs where the customers do give new instructions for the matured deposit.
- 29. 29 Operations-Fixed Deposit Account • Onthe date of maturity, such deposits are renewed for a similar term as that of the original deposit at the rate prevailing on the date of renewal. • Income tax regulations require that FD maturity proceeds exceeding Rs 20,000 not to be paid in cash. • Repayment of such and larger deposits has to be either by " A/c payee " crossed cheque in the name of the customer or by credit to the saving bank a/c or current a/c of the customer. Operations-Fixed Deposit Account • Nowadays, banks gives the facility of Flexi or sweep in FD, where in you can withdraw your money through ATM, through cheque or through funds transfer from your FD account. • Here the account holder decides the minimum amount to be kept in his/her savings account. • Any excess over it automatically gets transferred to a fixed deposit account. • Whenever cash is needed, the bank can just transfer or 'sweep' in funds to the savings account. Operations-Fixed Deposit Account • In such case, whatever interest is accrued on the amount you have withdrawn will be • credited to your savings account (the account that has been linked to your FD) and the balance amount will automatically be converted in your new FD. • This system helps you in getting your funds from your FD account at the times of emergency without wasting your time. Operations-Fixed Deposit Account • Customers can avail loans against FDs up to 80 to 90 per cent of the value of deposits. • The rate of interest on the loan could be 1% to 2 % over the rate offered on the deposit and. • Tax is deducted by the banks on FDs if interest paid to a customer at any bank exceeds Rs. 10,000 in a financial year. • This is applicable to both interest payable or reinvested per customer. • This is called Tax deducted at Source and is presently fixed at 10% of the interest if PAN is updated in the account otherwise rate is 20%.
- 30. 30 Operations-Fixed Deposit Account • WithCBS banks can tally FD holding of a customer across various branches and TDS is applied if interest exceeds Rs 10,000 • Banks issue Form 16 A every quarter to the customer, as a receipt for Tax Deducted at Source. • If the total income for a year does not fall within the overall taxable limits, then customers can submit a – Form 15 G (below 60 years of age) or – Form 15 H (above 60 years of age) to the bank • when starting the FD and at the start of every financial year to avoid TDS. Operations-Recurring Deposit Account • Recurring Deposit is a special kind of Term Deposit offered by banks in India • which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and • earn interest at the rate applicable to Fixed Deposits. • Another variant for investment • Also knows as RD or cumulative deposit. Operations-Recurring Deposit Account • It is similar to making FDs of a certain amount in monthly installments, – for example Rs 1000 every month. • This deposit matures on a specific date in the future along with all the deposits made every month. • Thus, Recurring Deposit schemes allow customers with an opportunity to build up their savings through regular monthly deposits of fixed sum over a fixed period of time. • Minimum Period of RD is 6 months and maximum is 10 years Operations-Recurring Deposit Account • The Recurring Deposit can be funded by [Standing order (banking)|Standing instructions] which are the instructions by the customer to the bank to withdraw a certain sum of money from his Savings/ Current account and credit to the Recurring Deposit every month. • When the RD account is opened, the maturity value is indicated to the customer assuming that the monthly installments will be paid regularly on due dates
- 31. 31 Operations-Recurring Deposit Account • Ifany installment is delayed, the interest payable in the account will be reduced and will not be sufficient to reach the maturity value. • Therefore, the difference in interest will be deducted from the maturity value as a penalty. • The rate of penalty will be fixed upfront. • Interest is compounded on quarterly basis in recurring deposits. Operations-Recurring Deposit Account • One can avail loans against the collateral of Recurring deposit up to 80 to 90% of the deposit value • Rate of Interest offered is similar to that in Fixed Deposits • Earlier it seemed to be one of the best method to save the amount yield after years of deposit. • But effective from June 1, 2015 TDS is applicable on RDs. Operations-Recurring Deposit Account • Tax Deducted at Source ( TDS ) is applicable on RDs. If interest earned on recurring deposits exceeds Rs. 10,000 a year, TDS at the rate of 10 per cent would be deducted by the bank. • Income tax is to be paid on interest earned from a Recurring Deposit at the rate of tax slab of the RD holder. • Investors with no taxable income will have to submit Form 15G to avoid TDS on both recurring deposits and fixed deposits. • For senior citizens, the requisite form for avoiding TDS is 15H. Bank Deposits- A Snap Shot 124
- 32. 32 RBI-Introduction • The ReserveBank of India is India's central banking institution, – which controls the monetary policy of the Indian rupee. • It commenced its operations on 1 April 1935 during the British Rule in accordance with the provisions of the Reserve Bank of India Act 1934. • The RBI plays an important part in the Development Strategy of the Government of India. • It is a member bank of the Asian Clearing Union. 125 RBI-Introduction • The general superintendence and direction of the RBI is entrusted with the 21-member Central Board of Directors: – The Governor , – 4 Deputy Governors, – 2 Finance Ministry representatives, – 10 government-nominateddirectors to represent important elements from India's economy, – 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai and New Delhi. • Each of these local boards consists of 5 members who represent regional interests, and the interests of co-operative and indigenous banks. 126 RBI Functions Issueof Bank Notes Banker’s Bank Banker to Government Lender of Last Resort Central Clearance and Accounts Settlement Controller of Credit Custodian of Country’s Foreign Currency Reserves Custodian of Cash Reserves of Commercial Banks 127 Issue of Bank Notes • TheReserve Bank of India has the sole right to issue currency notes except one rupee notes which are issued by the Ministry of Finance. • Currency notes issued by the Reserve Bank are declared unlimited legal tender throughout the country. Banker to Government • As banker to the government the Reserve Bank manages the banking needs of the government. • It has to-maintain and operate the government’s deposit accounts. • It collects receipts of funds and makes payments on behalf of the government. • It representsthe Government of India as the member of the IMF and the World Bank. 128 RBI-Functions
- 33. 33 Lender of Last Resort •Thecommercial banks approach the Reserve Bank in times of emergencyto tide over financial difficulties, • and the Reserve bank comes to their rescue though it might chargea higher rate of interest. Central Clearance and Accounts Settlement • Sincecommercial banks have their surplus cash reserves deposited in the Reserve Bank, it is easier to deal with each other and settle the claim of each on the other through book keepingentries in the books of the Reserve Bank. • Theclearing of accounts has now become an essential function of the Reserve Bank. 129 RBI-Functions Controller of Credit • Since credit money forms the most important part of supply of money, and since the supply of money has important implications for economic stability, the importance of control of credit becomes obvious. • Credit is controlled by the Reserve Bank in accordance with the economic priorities of the government. Banker’s Bank • RBI is the Banker to all the banks- that is, to all the Commercial Banks , Cooperative Banks and Regional Rural Banks(RRBs). • RBI holds their cash reserves, lends them short -term funds and provides them the central clearing and remittances facilities. 130 RBI-Functions Custodian of Cash Reserves of Commercial Banks • The commercial banks hold deposits in the Reserve Bank and the latter has the custody of the cash reserves of the commercial banks. Custodian of Country’s Foreign Currency Reserves • The Reserve Bank has the custody of the country’s reserves of international currency, and • this enables the Reserve Bank to deal with crisis connected with adverse balance of payments position. 131 RBI-Functions RBI -Developmental and Promotional Functions • Development of the Financial System • Development of Agriculture • Provision of Industrial Finance • Provisions of Training • Collection of Data • Publication of the Reports • Promotion of Banking Habits • Promotion of Export through Refinance 132
- 34. 34 Roles of RBI-Developmental and Promotional • Development of the Financial System – The financial system comprises the • financial institutions, • financial markets and financial instruments. – The sound and efficient financial system is a precondition of the rapid economic development of the nation. • Development of Agriculture – In an agrarian economy like ours, the RBI has to provide special attention for the credit need of agriculture and allied activities. – It has earlier the Agriculture Refinance and Development Corporation (ARDC) to look after the credit, – National Bank for Agriculture and Rural Development (NABARD) and Regional Rural Banks (RRBs). 133 Roles of RBI -Developmental and Promotional • Provision of Industrial Finance – Rapid industrial growth is the key to faster economic development. – In this regard, the adequate and timely availability of credit to small, mediumand large industry is very significant. – In this regard the RBI has always been instrumental in setting up special financial institutions such as • ICICI Ltd. • IDBI, • SIDBI and EXIM BANK etc. • Provisionsof Training – The RBI has always tried to provide essential training to the staff of the banking industry. – The RBI has set up the Bankers' Training Colleges at several places. • National Institute of Bank Management i.e NIBM, • Bankers Staff College i.e BSC and • College of Agriculture Banking i.e CAB are few to mention. 134 Roles of RBI -Developmental and Promotional • Collection of Data – Being the apex monetary authority of the country, the RBI collects process and disseminates statistical data on several topics. – It includes interest rate, inflation, savings and investments etc. – This data proves to be quite useful for researchers and policy makers. • Publication of the Reports – The Reserve Bank has its separate publication division. This division collects and publishes data on several sectors of the economy. – The reports and bulletins are regularly published by the RBI. – It includes RBI weekly reports, RBI Annual Report, Report on Trend and Progress of Commercial Banks India etc. 135 Roles of RBI -Developmental and Promotional • Promotion of Banking Habits – As an apex organization, RBI always tries to promote the banking habits in the country. – It institutionalizes savings and takes measures for an expansion of the banking network. – It has set up many institutions such as the Deposit Insurance Corporation-1962, UTI-1964, IDBI-1964, NABARD-1982, NHB-1988, etc • Promotion of Export through Refinance – The RBI always tries to encourage the facilities for providing finance for foreign trade especially exports from India. • The Export-Import Bank of India (EXIM Bank India) and • The Export Credit Guarantee Corporation of India (ECGC) – are supported by refinancing their lending for export purpose. 136
- 35. 35 CHEQUE PAYMENT AND COLLECTION PrashantTiwari Assistant Professor Institute of Business Management GLA University, Mathura 137 Cheque- Meaning • Cheque is a very common form of negotiable instrument. • If you have a savings bank account or current account in a bank, you can issue a cheque in your own name or in favor of others, thereby directing the bank to pay the specified amount to the person named in the cheque. • Therefore, a cheque may be regarded as a bill of exchange; the only difference is that the bank is always the drawee in case of a cheque. • The Negotiable Instruments Act, 1881 defines a cheque as a bill of exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. • Actually, a cheque is an order by the account holder of the bank directing his banker to pay on demand, the specified amount, to or to the order of the person named therein or to the bearer. Cheque- Meaning Cheque- Features • A cheque must be in writing and duly signed by the drawer. • It contains an unconditional order. • It is issued on a specified banker only. • The amount specified is always certain and must be clearly mentioned both in figures and words. • The payee is always certain. • It is always payable on demand. • The cheque must bear a date otherwise it is invalid and shall not be honoured by the bank.
- 36. 36 Cheque- Types • Opencheque, and • Crossed cheque. • Bearer cheque • Order cheque Cheque- Types • Open cheque: – A cheque is called ‘Open’ when it is possible to get cash over the counter at the bank. The holder of an open cheque can do the following: – i. Receive its payment over the counter at the bank, – ii. Deposit the cheque in his own account – iii. Pass it to some one else by signing on the back of a cheque Cheque- Types • Crossed cheque: – Since open cheque is subject to risk of theft, it is dangerousto issue such cheques. – This risk can be avoided by issuing another types of cheque called ‘Crossed cheque’. – The payment of such cheque is not made over the counter at the bank. – It is only credited to the bank account of the payee. – A cheque can be crossed by drawing two transverse parallel lines across the cheque, with or without the writing ‘Account payee’ or ‘Not Negotiable’. Cheque- Types • Bearer cheque: – A cheque which is payable to any person who presents it for payment at the bank counter is called ‘Bearer cheque’. – A bearer cheque can be transferred by mere delivery and requires no endorsement.
- 37. 37 Cheque- Types • Ordercheque: – An order cheque is one which is payable to a particular person. – In such a cheque the word ‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. – The payee can transfer an order cheque to someone else by signing his or her name on the back of it. There is another categorization of cheques which is discussed below • Ante-dated cheques:- – Cheque in which the drawer mentions the date earlier to the date of presenting it for payment. – For example, a cheque issued on 20th May 2003 may bear a date 5th May 2003. • Stale Cheque:- – A cheque which is issued today must be presented before at bank for payment within a stipulated period. – After expiry of that period, no payment will be made and it is then called ‘stale cheque’. Find out from your nearest bank about the validity period of a cheque. There is another categorization of cheque which is discussed below • Mutilated Cheque:- – In case a cheque is torn into two or more pieces and presented for payment ,such a cheque is called a mutilated cheque. – The bank will not make payment against such a cheque without getting confirmation of the drawer. But if a cheque is torn at the corners and no material fact is erased or cancelled, the bank may make payment against such a cheque. • Post-dated Cheque:- – Cheque on which drawer mentions a date which is subsequent to the date on which it is presented, is called post-dated cheque. For example, if a cheque presented on 8th May 2003 bears a date of 25th May 2003, it is a post- dated cheque. The bank will make payment only on or after 25th May 2003. Specimen of a Crossed Cheque:
- 38. 38 Crossing of thecheque • The Crossing of a cheque is the instruction to the paying banker to transfer the specified amount to the payee account from the payer account and not over the counter. • The crossing of the cheque is used as a means of protection against misusing cheques. 149 Types of Crossing • General Crossing Cheque • Special Crossing Cheque • Restricted Crossing 150 General Crossing Cheque • In general crossing, the cheque bears across its face an addition of two parallel transverse lines and/or the addition of words ‘and Co.’ or ‘not negotiable’ between them. • In the case of general crossing on the cheque, the paying banker will pay money to any banker. 151 General Crossing Cheque • For the purpose of general crossing two transverse parallel lines at the corner of the cheque are necessary. 152
- 39. 39 Special Crossing Cheque •In special crossing, the cheque bears across its face an addition of the banker’s name, – with or without the words ‘not negotiable’. • In this case, the paying banker will pay the amount of cheque only to the banker – whose name appears in the crossing or to his collecting agent. 153 Special Crossing Cheque • Thus, the paying banker will honor the cheque only when it is ordered through the bank mentioned in the crossing or its agent bank. • However, in special crossing two parallel transverse lines are not essential but the name of the banker is most important. 154 Restricted Crossing • This type of crossing restricts the negotiability of the cheque. • It directs the collecting banker that he needs to credit the amount of cheque only to the account of the payee, or the party named or his agent. 155