Here are some of the major products and services offered by banks: - Deposit accounts: Savings accounts, current/checking accounts, fixed/term deposits, recurring deposits etc. These are the core deposit taking functions of banks. - Lending products: Overdrafts, cash credits, loans for various purposes like home, vehicle, personal, business, agriculture etc. Banks lend the deposits they collect. - Payment and remittance services: ATM cards, debit cards, credit cards, netbanking, mobile banking, IMPS, NEFT, RTGS funds transfer services. These facilitate cashless payments and funds transfer. - Third party services: Demat/trading account, insurance, mutual funds,

1. INTRODUCTION TO
BANKING AND
INSURANCE
COURSE CODE: IBFT 04101
PRESENTED BY Mr. Hafidhi T. Saidi

2. Bank and
Banking
• Meaning of bank and banking
• Bank is an organization or a company like any other
company, which sells and buys goods and services in the
market. The main difference between other companies and
banks is that, other companies are trading goods and
services for money, but in the case of bank the trading item
itself is MONEY, instead of tangible goods or intangible
services.
• How a bank works can simply be explained as accepting
deposits from customers by paying interest to their
deposits, while lending this money deposited to required
parties for an interest rate, which is higher than that paid to
depositors. The net gain is the main source of income to

3. • This is a classical view of a bank; however nowadays, banks
are engaged in other activities as well. All the activities carried
out by a bank is called banking.
• Bank
• The oxford dictionary defines bank as “an organization
offering financial services, especially loans and safe keeping of
customers money”. There must be a central bank in every
country, which is authorized with monitory policy making by
the government of that nation. It acts as a financial
intermediary. Other than the central bank, there are several
types of banks like retail banks, investment banks etc. The
commercial banks mostly deal with accepting deposits and
providing loan facilities. Community development banks,
community banks, and postal saving banks are some
examples for retail banks. Merchant banks and industrial
banks are good examples for investment banks.

4. • Banking
• Banking is the business activity of a bank. Simply, any activity
carried out by a bank for business purposes is called banking.
Accepting savings, Lending money, leasing properties to
needy people, paying for cheques, providing mortgage
facilities, acting on to standing orders, statement of
instructions, providing safety locker facilities for valuable
things, providing over draft facilities to current account
holders, acting as institutional investors in financial market,
issuing ‘letter of credit’ in the business of import and export,
act as money changer, issuing travelers’ cheques are some of
the activities carried out by modern banks in the banking
industry. Nowadays, banking can be done via the internet,

5. • Though the words bank and banking seem to be conveying
the same meaning, they have some differences between them:
• – Bank is a tangible object, while banking is a service.
• – Bank refers to the physical resources like building, staffs,
furniture, etc, while banking is the output (financial services)
of the bank by utilizing those resources.
• Therefore, bank is an organization or company that offer
financial services as custodian of surplus units and proving
loans from deposited fund to deficit unit, for bank is an
intermediator between surplus and deficit (units) in the
community

6. • Banking are activities or services offered by the bank as
prevailed in a first slide

7. Types of
Banks
• As we have discussed above that bank is a financial institution
that allows deposit from the public and lending some of
deposited amount to public in addition with excess amount as
interest which banks consider as profit.
• Banks are institutions like other business companies except
that bank deals with money only however now days banks
offer other services that are non monetary in nature but it is
just to facilitate banking activities.
• Following are different types of banks

8. Types of Banks
• 1. Commercial Banks:
• These banks play the most important role in modern
economic organization. Their business mainly consists of
receiving deposits, giving loans and financing the trade of a
country. They provide short-term credit, i.e., lend money for
short periods. This is their special feature.
• 2. Exchange Banks:
• Exchange banks finance mostly the foreign trade of a country.
Their main function is to discount, accept and collect foreign
bills of exchange. They also buy and sell foreign currencies
and help businessmen to convert their money into any foreign
money they need. Their share in the internal trade of a country
is usually small. In addition, they carry on ordinary banking
business too.

9. Types of Banks
• 3. Industrial Banks:
• Industries require capital for a long period for buying
machinery and equipment. Industrial banks provide this type
of Mock capital. Industrial banks have a large capital of their
own. They also receive deposits for longer periods. They are
thus in a position to advance long-term loans.
• There are a few industrial banks in India. But in some other
countries, notably Germany and Japan, these banks perform
the function of advancing loans to industrial undertakings.

10. Types of Banks
• 4. Agricultural or Co-operative Banks:
• The main business of agricultural banks is to provide funds to
farmers. They are worked on the co-operative principle. Long-
term capital is provided by land mortgage banks, nowadays
called land-development banks, while short-term loans are
given by co-operative societies and co-operative banks.
Long-term loans are needed by the farmers for purchasing
land or for permanent improvements on land, while short-
period loans help them in purchasing implements, fertilizers
and seeds. Such banks and societies are doing useful work in
India.

11. Types of Banks
• 5. Savings Banks:
• These banks (perform the useful service of collecting small
savings. Commercial banks too run “savings departments” to
mobilise the savings of men of small means. The idea is to
encourage thrift and discourage hoarding. Post Office Saving
Banks in India are doing this useful work.
• 6. Central Banks:
• Over and above the various types of banks mentioned above,
there exists in almost all countries today a Central Bank. It is
usually controlled and quite often owned by the government
of the country

12. Types of Banks
Investment Bank
• An investment bank is a financial intermediary that specializes
primarily in selling securities and underwriting the issuance of
new equity shares to raise capital funds. This is different from
a commercial bank, which specializes in deposits and
commercial loans.
• How Does an Investment Bank Work?
• Investment banks mediate between companies that issue
securities and the individuals or entities wishing to purchase
them. In this respect, investment banks operate along two
main lines: a "buy" side and a "sell" side. "Buy" side operations
include services such as securities trading and portfolio
management. "Sell" side activities include underwriting new

13. Why Does an Investment Bank Matter?
• Investment banks bring investors together with companies
that issue securities and broker securities. Investment banks
are also beneficial to security-issuing companies, because,
while they broker the securities a company may issue, they
can help raise capital funds for such companies
through underwriting new stock offerings.

14. FUNCTION’s OF
BANK
• Bank as a financial institution has several roles or functions
which make it to be what its, therefore contrary to those
functions there will be no bank as financial institution at all,
thus banking functions have classified into two major
categories namely primary functions and secondary functions
• Primary functions are those that makes an institution be a
bank those are accepting deposit and lending money from and
to the public respectively
• While
• secondary functions are those that makes bank an
intermediator or a middle man who facilitate other people
transactions and activities / events.

15. PRIMARY FUNCTIONS OF A
BANKs
• The primary functions of a bank are also known as banking
functions. They are the main functions of a bank.
• These primary functions of banks are explained below
• Under primary functions banks deal with
Accepting deposit and lending money
i) ACCEPTING DEPOSITY
• by accepting deposit means receiving / collecting fund
from surplus units ( those who have extra cash) with
intention of saving them to finance future expenditures
such as children school fees, vacation among others.
This service is offered through different products

16. PRIMARY FUNCTIONS OF A
BANKs
• The bank collects deposits from the public. These deposits
can be of different types, such as :-
Saving Deposits
Fixed Deposits
Current Deposits
Recurring Deposits
• a. Saving Deposits
• This type of deposits encourages saving habit among the
public. The rate of interest is low. At present it is about 4%
p.a. Withdrawals of deposits are allowed subject to certain
restrictions. This account is suitable to salary and wage
earners. This account can be opened in single name or in
joint names.

17. PRIMARY FUNCTIONS OF A
BANKs
• b. Fixed Deposits Lump sum amount is deposited at one time
for a specific period. Higher rate of interest is paid, which
varies with the period of deposit. Withdrawals are not allowed
before the expiry of the period. Those who have surplus funds
go for fixed deposit.
• c. Current Deposits
• This type of account is operated by businessmen. Withdrawals
are freely allowed. No interest is paid. In fact, there are service
charges. The account holders can get the benefit of overdraft
facility.
• d. Recurring Deposits
• This type of account is operated by salaried persons and petty
traders. A certain sum of money is periodically deposited into
the bank. Withdrawals are permitted only after the expiry of

18. PRIMARY FUNCTIONS OF A
BANKs
• ii) Granting of Loans and Advances
• This is another primary function of banks whereby after
collection of fund from surplus unit bank urges people on
borrowing them at a particular rate of interest in order to
make profit, thus The bank advances loans to the business
community and other members of the public. The rate
charged is higher than what it pays on deposits. The
difference in the interest rates (lending rate and the deposit
rate) is its profit.
• The types of bank loans and advances are :-
• Overdraft
• Cash Credits
• Loans
• Discounting of Bill of Exchange

19. PRIMARY FUNCTIONS OF A
BANKs
• a. Overdraft
• This type of advances are given to current account holders. No
separate account is maintained. All entries are made in the
current account. A certain amount is sanctioned as overdraft
which can be withdrawn within a certain period of time say
three months or so. Interest is charged on actual amount
withdrawn. An overdraft facility is granted against a collateral
security. It is sanctioned to businessman and firms.
• b. Cash Credits
• The client is allowed cash credit upto a specific limit fixed in
advance. It can be given to current account holders as well as
to others who do not have an account with bank. Separate
cash credit account is maintained. Interest is charged on the
amount withdrawn in excess of limit.

20. PRIMARY FUNCTIONS OF A
BANKs
• The cash credit is given against the security of tangible assets
and / or guarantees. The advance is given for a longer period
and a larger amount of loan is sanctioned than that of
overdraft
• c. Loans
• It is normally for short term say a period of one year or
medium term say a period of five years. Now-a-days, banks
do lend money for long term. Repayment of money can be in
the form of installments spread over a period of time or in a
lump sum amount. Interest is charged on the actual amount
sanctioned, whether withdrawn or not. The rate of interest
may be slightly lower than what is charged on overdrafts and
cash credits. Loans are normally secured against tangible

21. PRIMARY FUNCTIONS OF A
BANKs
• d. Discounting of Bill of Exchange
• The bank can advance money by discounting or by purchasing
bills of exchange both domestic and foreign bills. The bank
pays the bill amount to the drawer or the beneficiary of the bill
by deducting usual discount charges. On maturity, the bill is
presented to the drawee or acceptor of the bill and the
amount is collected.

22. SECONDARY FUNCTIONS OF
BANKs
• The bank performs a number of secondary functions, also
called as non-banking functions.
• These important secondary functions of banks are explained
below
• 1. Agency Functions
• The bank acts as an agent of its customers. The bank
performs a number of agency functions which includes :-
• Transfer of Funds
• Collection of Cheque
• Periodic Payments
• Portfolio Management
• Periodic Collections
• Other Agency Functions

23. SECONDARY FUNCTIONS OF
BANKs
• a. Transfer of Funds
• The bank transfer funds from one branch to another or
from one place to another.
• b. Collection of Cheques
• The bank collects the money of the cheques through
clearing section of its customers. The bank also collects
money of the bills of exchange.
• c. Periodic Payments
• On standing instructions of the client, the bank makes
periodic payments in respect of electricity bills, rent, etc.

24. SECONDARY FUNCTIONS OF
BANKs
• d. Portfolio Management
• The banks also undertakes to purchase and sell the shares
and debentures on behalf of the clients and accordingly
debits or credits the account. This facility is called portfolio
management.
• e. Periodic Collections
• The bank collects salary, pension, dividend and such other
periodic collections on behalf of the client.
• f. Other Agency Functions
• They act as trustees, executors, advisers and
administrators on behalf of its clients. They act as
representatives of clients to deal with other banks and
institutions.

25. SECONDARY FUNCTIONS OF
BANKs
• 2. General Utility Functions
• The bank also performs general utility functions, such as :-
• Issue of Drafts, Letter of Credits, etc.
• Locker Facility
• Underwriting of Shares
• Dealing in Foreign Exchange
• Project Reports
• Social Welfare Programmes
• Other Utility Functions

26. SECONDARY FUNCTIONS OF
BANKs
• a. Issue of Drafts and Letter of Credits
• Banks issue drafts for transferring money from one place to
another. It also issues letter of credit, especially in case of,
import trade. It also issues travelers' cheques.
• b. Locker Facility
• The bank provides a locker facility for the safe custody of
valuable documents, gold ornaments and other valuables.
• c. Underwriting of Shares
• The bank underwrites shares and debentures through its
merchant banking division.

27. SECONDARY FUNCTIONS OF
BANKs
• d. Dealing in Foreign Exchange
• The commercial banks are allowed by RBI to deal in foreign
exchange.
• e. Project Reports
• The bank may also undertake to prepare project reports on
behalf of its clients.
• f. Social Welfare Programmes
• It undertakes social welfare programmes, such as adult
literacy programmes, public welfare campaigns, etc.
• g. Other Utility Functions
• It acts as a referee to financial standing of customers. It
collects creditworthiness information about clients of its
customers. It provides market information to its customers,

28. GROUP DISCUSSION
• Identify and discuss different products and services
offered by banks