This document provides an overview of various banking products and services. It begins by defining banking as accepting deposits from the public that are repayable on demand. It then discusses the key roles of banks as financial intermediaries, constituents of the payment system, and providers of financial services. The document goes on to describe various deposit, lending, and payment products offered by banks, including accounts, loans, cards, funds transfer services, and collection services. It provides details on the types of personal and business credit as well as working capital facilities available.

1. Overview of Banking
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Utkarsh Saxena

2. Objectives
• From this topic you will be able to
Understand the meaning of banking
Understand the role of banks as
○ Financial intermediaries
○ Constituents of the payment system
○ Financial services providers
Appreciate the role of the banking system in
economic development
Understand the various products and
services offered by banks
Identify various banking channels
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3. Definition of Banking
 Section 5 (b) of the Banking
Regulation Act 1949 defines
“Banking” as
“Accepting for the purpose of lending and
investment, deposits of money from the
public
repayable on demand or otherwise
and withdrawable by cheque, draft, order
or otherwise”
 No definition of banking can be
comprehensive enough in the present
context
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4. Roles of Banks
• Intermediation
• Between those who save money and
those who need money
• Risks in lending
• Credit Risk
• Liquidity Risk
• Interest Rate Risk
• Banks are essentially risk managers
• Financial intermediation plays an
important economic function
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5. Roles of Banks [Contd.]
 Payment system
Pay deposits on demand
Payment through cheques
Facilitate movement of money
Circulatory system of the economy
 Financial services provider
Products of mutual funds and insurance
companies
Collection of utility bills, etc.
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6. Banking – A Business of
Trust Banking is based on the trust that
banks will honour their commitments
 Principles on which banking business
is based
Liquidity
Safety
Profitability
Secrecy
Service Quality
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7. Summary
 Up to this point you learned that
“Banking” is defined as “accepting for the
purpose of lending and investments,
deposits of money from the public,
repayable on demand or otherwise, and
withdrawable by cheque, draft, order or
otherwise”
 Banks are risk managers
 Banks are constituents of the
payment system
 Banks provide various financial
services
 Banking is a business of trust
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8. Banking Services and
Products
 In this section you will be able to
Understand the various financial services
and products offered by banks
Understand various payment and
remittance services
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9. Various financial services & products
 Payment system constituent
 Payments and remittances
 Collection
 Financial Intermediary
 Deposit
 Loan
 Allied Services
 Distribution
 Collection
 Demat services
 Safe keeping
 Advisory
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10. Payment and Remittance
services
 In this section you will be able to
Understand various modes provided by
banks for making local payment as well
as making payment at other places
Understand various modes available for
remitting money to other places
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11. Cheque
 A written instruction issued by a
customer (Drawer) to his bank
(Drawee) to pay the specified amount
to the person named (Payee) in the
cheque
 Crossed and uncrossed cheques
 Requirement of sufficient balance for
making payment
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12. Payorder/Banker’s Cheque
 A cheque issued by a bank on itself
For local payments
To ensure certainty of payment
 An image of a Banker’s cheque
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13. Demand Drafts
 Cheque issued by a bank on itself but
payable at another branch
 In case there is no branch of the
issuing bank, arrangements can be
made with the other bank(s) having
its/their branch(es)
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14. Multi City Cheques
 A cheque which can be paid at any
branch of the bank
 Networking of the branches and
centralised computer system is a pre-
requisite
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15. Electronic Fund Transfer
(EFT) Faster mode of remitting money to far away places
 Centralised computer system enables the
transaction
 The payment can be made instantly if the payee /
beneficiary has an account with the payment
branch
 In case payer and payee maintain accounts with
two different banks, the transaction can be
completed through the Reserve Bank of India
 Cost effective and fast mode of transaction
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16. Summary
 Up to this point you learned that
Some of the products offered as part of
the payment service are
○ Cheques
○ Payorder / Bankers Cheque
○ Demand Draft (DD)
○ Multi City Cheques
○ Electronic Funds Transfer (EFT)
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17. Payment Services [Contd.]
 In this section you will learn that
Some other products offered as part of
the payment service are
○ Debit card
○ Credit card
○ Travel card
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18. Debit Cards
 A substitute for cheques
 Can be used for withdrawing cash
from ATM as well as making
payments to third parties through
POS
 Account of the customer is debited
instantly
 Add-on facilities
 24 X 365 days banking
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19. Credit Cards
 Customer gets certain credit limit
from the credit card issuing bank
 The amount utilized is debited to
credit card account
 Customer gets some time to make
payment to the bank
 Customer gets interest free credit for
upto 50 days
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20. Travel Cards
 A pre-paid debit card
 Useful for travel abroad
 Image of a travel card
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21. Summary
 In this section you learned that
Some more products offered as a part of the
payment service are
○Debit card
○Credit card
○Travel card
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22. Collection Services
 In this section you will be able to
List the different types of collection
services
Describe each of these specific collection
services
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23. Different Types of Collection Services
 Transfer
 Local Clearing
 ECS or Electronic Clearing
 Cheque Collection
 National Clearing
 CMS – Cash Management Services
 Bills Collection
 Services involving Foreign Exchange
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24. Transfer
 Transactions involving transfer of money
from one account to another account
within the branch of a bank or within the
branches of the same bank
 Inter-connection through networking
enables speedier transfer within
branches
 Traditional methods (without networking)
take time in realisation of proceeds
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25. Local Clearing
 Facilitating collection of cheques which
are drawn on local branches of banks
 Bankers meet at Clearing House for
exchange of cheques
 RBI and / or SBI and / or commercial
banks maintain Clearing House in
different locations
 Day’s inward and outward cheques
between banks are exchanged and
transaction amounts are “netted”
 Local clearing is “NET” settlement
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26. Electronic Clearing Service
(ECS) Payment instructions are transmitted electronically
 Covers high volume, low value transactions
 Both debit (ECS Debit) and credit (ECS Credit)
transactions are covered
 Managed by RBI or SBI
 Credit ECS
Example: Interest on Securities, Dividends,
Regular Salaries
 Debit ECS
Example: Insurance premiums, Loan
repayments, Utility bill payments
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27. ECS [Contd.]
 Benefits
Speed
Accuracy
Secured channel
Avoids manual intervention (processing
of transactions)
Saves time due to systemic handling
Benefits flow to bank, customer and user
public
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28. Summary
 Up to this point you learned that
Some of the products offered as a part of
the collection service are
○ Transfer
○ Local Clearing
○ Electronic Clearing System (ECS)
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29. Collection Services
[Contd.]
 In this section you will learn that
 Some more of the products offered as a part of the
collection service are
○ Cheque Collection
○ National Clearing
○ Cash Management Service (CMS)
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30. Cheque Collection
 Local cheques are collected in local
clearing
 Outstation cheques (upcountry) are
collected by sending the cheques to
respective banks’ branches
 Unlike local clearing, cheque
collection takes time due to travel and
realisation of proceeds into
customer’s account
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31. National Clearing
 Speedier collection of outstation
cheques drawn on larger cities
 RBI has linked larger cities
 Works under the same principle as
local clearing
 Communication has enabled
networking and efficiency in collection
 Unlike outstation cheque collection,
national clearing facilitates faster
collection
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32. Cash Management Service
(CMS) Best suited for customers with wide
network of operations and dealers
 Enables to manage liquidity efficiently
through speedier collection and efficient
management of payments
 Availability of MIS on collections and
payments – a major benefit of CMS
 Distributed collection and payment at
point of occurrence of transactions
 Enables customers under CMS to
reconcile their payments and collections
on a daily basis
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33. Summary
 Up to this point you learned that
Some more of the products offered as a
part of the collection service are
○ Cheque Collection
○ National Clearing
○ Cash Management Service (CMS)
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34. Collection Services
[Contd.]
 In this section you will learn that
Some further products offered as a part
of the collection service are
○ Bill Collection
○ Foreign Exchange
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35. Bill Collection
 Instead of paying through cheques, business houses
draw bills of exchange at times
 Bills can be demand bills or usance bills
 Invoice, bill and document of title to goods (trade
documents) are handed over to the bank by seller
 The Bank sends the same to the buyer’s bank for
collecting payment
 Buyer’s bank hands over all trade documents upon
receipt of payment from buyer on a demand bill or
receipt of acceptance from the buyer in case of usance
bill
 Buyer’s bank remits the proceeds to the seller’s bank
and seller gets money for goods / services sold
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36. Foreign Exchange [Forex]
 Need arises when payments are to be
made to a beneficiary in an overseas
country in foreign currency
 Payments received in foreign currency
needs to be realised in Indian currency
 Banks maintain accounts in an overseas
country to facilitate transactions
involving foreign currency
 Such accounts are known as “Nostro”
accounts
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37. Summary
 Up to this point you learned that
Some further products offered as a part
of the collection service are
○ Bill Collection
○ Foreign Exchange
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38. Deposit & Credit Services
 In this section you will be able to
Describe the products offered by banks
in deposit services
Describe credit products offered by
banks in retail segment
Identify various products offered as
business credit
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39. Deposit Services
 Current Accounts
 Demand deposits
 No interest is paid on balances in current accounts
 Savings Accounts
 Demand deposits for non-business entities
 Interest is paid on balances
 Fixed Deposit Accounts
 Accepted for fixed period
 Pre-mature payment is permitted as measure of
customer service
 Recurring Deposit Accounts
 Saving of a fixed sum every month for a fixed period
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40. Retail Credit Products
 Retail Loans
 Personal Overdrafts
 Credit Cards
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41. Retail Loans
 Retail Loans
Provided to individuals
 Nature
Consumer durables
Housing
Vehicle
Personal expenses
 Eligibility
 Margin
 Interest application
 Repayment – monthly or quarterly
 Unsecured and secured
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42. Personal Overdrafts
 Personal Overdraft
For unexpected and periodic
requirements
 Eligibility
 Margin
 Interest application
 Repayment
 Unsecured and secured
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43. Credit Cards
 Credit Cards
For purchases / withdrawals
 Eligibility
 Credit limit
 Repayment – monthly or in
installments
 Unsecured
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44. Deposit & Credit Services
 Up to this point you have learned of
The products offered by banks in deposit
services
The credit products offered by banks in
retail segment
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45. Deposit & Credit Services
[Contd.]
 In this section you will be able to
Identify various products offered as
business credit
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46. Business Credit
 Business credit
For acquisition of fixed assets
For financing current assets
 Eligibility
 Amount
 Borrowing/repayment
 Secured and unsecured
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47. TermLoans
 Given for acquiring of fixed assets
 Secured by a charge on the assets
created out of bank finance
 Margin requires to be contributed
 Repayment is out of profits generated
by the assets created and is spread
over a time in installments
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48. Leasing
 The assets required by the business
are acquired by the bank and leased
out to the customer
 Lease rentals are paid by the
customer
 Not very popular now as the tax
incentives available earlier are now
withdrawn
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49. Working Capital Facilities
 In this section you will understand the
various types of working capital
facilities
 Nature
overdraft
cash credit
packing credit
demand loans and lines of credit
business cards
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50. Working Capital Facilities
 Given for financing the working capital cycle
 Can be Pre sale or Post sale financing
 Overdraft
 For meeting short term requirements
 For meeting temporary mismatches in cash flow
 Can be secured or unsecured
 Cash Credit
 Most Common and popular facility in India
 Running Account
 Permanent in nature
 Limit established and withdrawals within limit
 Secured by a hypothecation charge on current assets
 Margin is maintained over the value of assets
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51. Working Capital Facilities
 Packing Credit
Similar to cash credit
For meeting export orders
Originally on order to order basis
Presently running account facility is
permitted
Concessive interest rate
Liquidation can be only by export proceeds
Delay in liquidation attracts penalty
Secured by a charge on the current assets
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52. Working Capital Facilities
 Demand Loans/Lines of Credit
Demand loan is for meeting short term
requirements
Attracts cheaper interest
Preferred by large corporates as cost
effective
Liquidated at the end of the stipulated period
Line of Credit is an assurance by the banker
to make available short term credit when
needed
Terms and conditions are pre-agreed
Gives a feeling of security for the corporate
The assurance is over a period of time
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53. Working Capital Facilities
 Business Card
Equivalent of a credit or debit card to
individuals
Enables business entities to make their
purchase of required supplies without
resorting to use of cheques or demand
drafts
Interest is charged from day one
Being popularized in India
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54. Summary
 In this section you learned that
Term loans and leasing finance is provided
for acquisition of fixed assets
Working capital requirements are ever
changing
They can be pre-sale financing or post-sale
financing
The nature of facilities of pre-sales financing
are
○ Overdraft
○ Cash Credit
○ Packing Credit
○ Demand Loans and Lines of Credit
○ Business Card
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55. Post Sale orTrade Finance
 In this section you will understand the
various modes of financing post sale
or credit sales
Cheque purchase
Bill purchase
Bill Discount
Letter of Credit
Bill Negotiation
Guarantees
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56. Post Sale orTrade Finance
 Cheque Purchase
 Avoids delay involved in collection of cheques
 Funds are made available to sellers immediately
 Interest is charged from the date of purchase to date
of realization of the cheque
 Bill Purchase
 Advance against documentary bills is payable at sight
 Bills are then sent for collection
 Advance is liquidated from collection proceeds
 Interest is charged from the date of purchase to the
date of receipt of proceeds is recovered upfront
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57. Post Sale orTrade Finance
 Bill Discount
Advance against documentary Usance
bills
Interest charged for the Usance period is
called discount
Discount is recovered upfront
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58. Post Sale orTrade Finance
 Letter of Credit
Guarantee given by the purchaser’s bank to
the seller that the bill representing sale of
goods will be paid
Parties to an LC are applicant (buyer of
goods), issuing bank (buyer’s bank), and
beneficiary (Seller of goods)
Treated as a credit facility by the buyer’s
bank
It is a non-fund based facility
Normally secured by a charge on current
assets
Commission is charged resulting in fee
income to bank
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59. Post Sale orTrade Finance
 Bill Negotiation
Purchase or discounting of a bill
accompanied by an LC
Risk to negotiating bank is less
Interest/discount is charged upfront
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60. Post Sale orTrade Finance
 Guarantees
Issued by banks at the request of
customers in respect of transactions
other than normal trade transactions
It can be as a replacement of EMD, for
receipt of mobilisation advance, for
release of retention money, towards
payment of penalty for non performance
Commission is charged for issue of
guarantee resulting in fee income to bank
It is a non-fund based facility
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61. Summary
 In this section you learned that
The various products available for post-
sale finance are:
○ Cheque Purchase
○ Bill Purchase
○ Bill Discount
○ Letter of Credit (LC)
○ Bill Negotiation
○ Guarantees
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62. Allied Services
 In this section you will be able to
Appreciate the various allied services
offered by banks in their role as provider
of financial services
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63. Providerof Allied Services
 The services provided by banks
under the role of provider of allied
services are
Distribution
Collection of taxes and bills
DeMAT accounts
Safe keeping
Advisory services
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64. Distribution
 In banking today, distribution of products
and third parties have assumed great
importance due to
Generation of fee income
Ability to provide single umbrella service
Ability to create exit barrier
 Activities involved are:
Mutual Fund Units
Insurance Products
Sale of Bonds
Trade in Gold / Gold coins
Mobile Phone Recharge
Shares of companies offering Public Issues
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65. Collection of Taxes and
Bills
 The products offered by banks within
the collection service are
Taxes
Utility Bills
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66. DeMat Account
 A depository is like a bank. Only
difference is that it holds your securities
and not cash
 The account opened with a depository
participant is called a DeMat account
 Dematerialisation is the process of
converting physical shares into
electronic form
 Rematerialisation is the process of
converting securities from electronic
form into physical form
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67. DeMat Account
 Physical securities are transferred on
basis of transfer deeds, DeMat
securities get transferred
electronically
 Each security (i.e., share of a
particular company) has a unique
identification No. called ISIN
(International Securities Identification
Number) through which the securities
are recognised
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68. DeMat Account
 Transfers are affected
Through the TIFD or Delivery Slip
Which is given by the seller to his DP
The shares will be transferred out of the
sellers DeMat account
And into the buyers DeMat account with his
DP
 The entire clearing process is put
through a central depository
 At present we have two depositories,
namely CDSL & NSDL who are
registered with SEBI
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69. Safe Keeping
 Safe Deposit Vault:
Safe keeping facility is a traditional function
of banks
Lockers provided at very reasonable rates
Rents are charged as per size of the locker
and are payable in advance
Lockers can be hired by individuals, firms,
Ltd. Companies, associations, societies etc
Lockers are rented out for a minimum period
of one year
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70. Safe Keeping
 Safe Custody Service:
Under safe custody, banks accept sealed
packets for safe keeping in their strong
rooms for which a receipt is issued
Articles are returned upon the customer
handing over the receipt
Not offered any more as a matter of
course
Banks today deposit the duplicate keys
of branches for safe custody with other
banks in the area for use in emergencies
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71. Advisory Service
 The product offered by banks within
the Advisory service is:
Investment Advice
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72. Summary
 In this section, you learned that
The services provided by banks under
the role of provider of allied services are
○ Distribution
○ Collection of taxes and bills
○ DeMAT accounts
○ Safe keeping
○ Advisory services
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73. Banking Channels
 In this section, you will be able to
Appreciate the various channels offered
by banks in their role as providers of
financial services
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74. Banking Channels
 Banking Channels:
ATMs
POS Terminals
Internet banking
Phone banking
Mobile banking
Branch
 Migrating from branch banking to other
channels- Advantages:
Convenience to customers
Cost effective to banks
Nearly 70% of transactions through non-
branch channels
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75. Summary
 In this section you learned that
The various non-branch banking
channels available in India are:
○ ATMs
○ POS terminals, mainly for credit cards
○ Phone Banking (call centre)
○ Internet Banking
○ Mobile Banking (SMS through mobile
phones)
There is increased use of non-branch
channels
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76. Summary
 From the topic of Overview of
Banking you will have
Understood the meaning of banking
Understood the role of banks as
○ Financial intermediaries
○ Constituents of the payment system
○ Financial services providers
Appreciated the role of the banking
system in economic development
Understood the various products and
services offered by banks
Been able to identify the various banking
channels
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77. Checkyourunderstanding
 Sections A, B and C
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78. Group Assignment
 Prepare a pictorial representation on
one of the following topics
Draw up a scrapbook to support the
presentation
 Topics
Banks contribute to economic growth of a
region in their role as intermediaries
Economy will come to a halt without the
payment mechanism of banks
Allied services offered by banks add value to
the Banks and to customers
Banking is a business of trust
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79. E-Learning module
 “Introduction to Retail Banking”
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