BANKING
Modern Banks Have you ever been inside a bank?
What are the names of some of the
banks you know?
If you step inside a Bank, you will find some
employees sitting at different counters with their computers/ ledgers and
dealing with the customers.
You can also observe people
depositing money at some counters and withdrawing money at other counters.
There is one cabin where the manager sits.
What do these bank employees do?
Commercial Banks :
Banking is a business activity
where money deposits are collected from the public, and these deposits can be
transferred from one person to another. Banks also give loans to businessmen,
industrialists, farmers and individuals. Such banks are called Commercial
Banks. Let us examine both these aspects.
Cash Deposits :
Deposits refer to the money that
people keep in the banks. There are different types of deposits. Let us look at
some of them in the following sections:
Savings Deposits or Savings Accounts:
Geeta has saved Rs. 5000 from her
salary and wants to keep it safely. She goes to a branch of State Bank of
Hyderabad which is close to her home and opens a Savings Account. She gets some
interest on this money and her money is also safe. Most importantly, she can
withdraw this money any time she wants. The bank promises to pay on demand.
Find out : How would she withdraw the money from an
ATM? How can she withdraw money from her bank branch? where she has an account.
Why do we save money in a bank? Money kept at home does not earn interest
and has no security But, money kept in a
bank account does. If you keep money in the bank, it will grow. How do you
think will the money grow? Money is safe in a bank, But, it is important to
check if the bank in which you intend to keep your hard earned money is
licensed or not. A person should not share his/her bank account details with
anybody. Protecting your bank account is also very important.
Basic Saving Bank Deposit Account (BSBDA)
It can have "zero" or
very low minimum balance. There are no restrictions like age, income, amount
etc. criteria for opening for individuals. Maximum of four withdrawals in a
month is allowed including ATM withdrawals. The services available include
deposit and withdrawal of cash; receipt / credit of money through electronic
payment channels or cheques.
PM JAN DHAN YOJANA : PMJDY Scheme
is the latest mega scheme intiated by the Government of India in August 2014.
The new scheme aims to achieve financial inclusion by ensuring that every poor
household in the country to get easy access to credit and open bank accounts,
with zero balance. Under the scheme the governament is giving rupay debit card
along with Rs 1 lakh accident insurance coverage and overdrafting facility.
Small Account :
If 'Basic Savings Bank Deposit
Account' is opened on the basis of simplified Know Your Customer (KYC) norms,
the account would additionally be treated as a 'Small Account' and would be
subject to conditions stipulated for such accounts. Total credits in such accounts
should not exceed one lakh rupees in a year. Maximum balance in the account
should not exceed fifty thousand rupees at any time. The total amount of debits
by way of cash withdrawals and transfers will not exceed ten thousand rupees in
a month.
Small accounts are valid for a
period of 12 months initially which may be extended by another 12 months if the
person provides proof of having applied for an Officially Valid Document
Current Account Deposits:
Many businessmen, shopkeepers,
companies and traders have a large number of
daily transactions, earnings and payments. They have to withdraw money
multiple times to buy goods, pay labourers etc. Similarly, large business
offices get money from customers who purchase their goods and services every
day and they pay to those who have supplied them various things or done some
work for them daily. For many requirements of these kind, banks have a separate
type of account called Current Account. There are no restrictions on the number
of times you can deposit or withdraw the money from a current account.
Transactions can be made by way of cheque, so there is no risk of handling huge
amounts of cash. However, the bank does
not pay any interest on money deposited in a current account but will collect
service charges.
Sarayu’s father started a Recurring Deposit of Rs. 500 in
a bank every month for a period of 5 years. He earns some interest which he
will get along with the principal amount he deposited after the completion of 5
years.
The interest he earns on the recurring deposit is less
than the interest on fixed deposits. Fixed Deposit Manaswini’s grandfather
wanted to give her a gift. So, he gave her a Fixed Deposit certificate for Rs.
10,000. “It will grow enough in the next five years to pay for your college
admission,” grandfather said. How can it grow? The money in a Fixed Deposit or
a Term Deposit cannot be withdrawn from the bank for a fixed period of time. It
could be one year, two, five or seven years.
The rate of interest is higher on a fixed deposit.
When should one opt for fixed deposits for savings? How
much money will Manaswini get from her Fixed Deposit in five years if the rate
of interest is 8%? Suppose she needs the money urgently for some medical
treatment. Can she withdraw it from the Fixed Deposit at the bank? What will
happen? What is the difference between Saving A/c and Current A/c ?
How does the Banking
system work? :
Cheque deposited into a bank account enables one to
transfer the money into another account. This facility operated by the banking
system makes deposits work like money. Bank deposits are money.
In many towns and cities representatives of all banks
meet on each day to settle what each bank has to pay to the other and receive
from the other. Cheques that have been verified are handed over to each
other. One of the banks works as the
Clearing Bank where all the banks have an account. The payments and receipts
between banks are done by this Clearing Bank.
In the present system, all banks and most of their
branches are linked by computers. All deposit holder accounts and their
signatures can be accessed by the branches anywhere. Hence, representatives
don’t have to meet nor do banks have to send cheques to the outstation
branches. Transaction between one bank and another is done through interlinked
computers. This makes the whole system work faster and in an easier manner.
Cheques :
Now a days, cheques are widely used for making payments
and receiving money. When you want to give money to someone, you write a cheque
in that person’s name. When you want to send money to someone, who lives in a
different place, you can send a cheque to the person by post. You can also use
your cheque to transfer money electronically into the other person’s account
through a bank. For business purposes, where money is frequently received and
paid, cheques are very important as a medium for transactions. You can see an
example (Fig: 7.4) of how a cheque is written. Suresh is an account holder in
the State Bank of Hyderabad. He has to pay Rs. 1,75,000/to Kancharla Sujatha.
So, he gives her a crossed cheque in the name of Kancharla Sujatha. Draw the
picture of a bank cheque in your
notebook and pay Rs.1,50,000 to your friend sitting next to you. Why is a
crossed cheque safe? Discuss. A model cheque
If Suresh Babu wants to deposit Rs.1,75,000
electronically into Kancharla Sujatha’s account through his bank, how can this
be done? What more information would he require? Visit a bank and find out.
Discuss and make a list of the different payments that people make
electronically without using a cheque.
Demand Draft (D.D.):
Shloka, a student applied for Intermediate admission. She
has to submit the application along with the Demand Draft to the authorities.
When you have to make payments to organisations in
advance to avail the services, you have to pay the money thorugh a D.D. Banks
collect some amount as service charge and issue a D.D. Example Shloka wants to
D.D. for Rs.1000/- she has to pay Rs. 1030/- including Rs.30/- as service
charges. The exchange value is equal to the D.D. amount. The D.D. enables the
authorities to encash immediately unlike the cheque. The cheque may some times
be returned due to insufficient funds, incase of D.D. there is no chance to
return because the amount is already paid, D.D. is acceptable for all payments.
What is the difference between D.D. and Cheque ? Why is
D.D. more acceptable than a Cheque ? Bank Accounts for Minors A Savings / Fixed
/ Recurring bank deposit account can be opened by a minor of any age through
his/her natural or legally appointed guardian. Minors above the age of 10 years
are allowed to open and operate savings bank accounts independently, subject to
bank's risk management systems that are in place Additional banking facilities
like internet banking, ATM / debit card, cheque book facility etc., are
allowed. But, minor account holders can withdraw only amount that is deposited
in his or her account.
Loans:
A bank is a
business enterprise. It has to pay interest to its depositors, pay salary to
its employees, has to buy and maintain equipment, pay rent and bear all the
cost of running a bank and also make profit. So how does it earn revenue?
Deposits are the source through which money saved by
people comes into the bank. As long as the depositors trust that the bank will
pay them their money on demand, people don’t rush to withdraw their deposit as
cash. Many people withdraw money at the
beginning of the month. If the depositors are farmers, there will be a greater
demand for cash during certain seasons (rainy season). Hence, over a period of
time, banks realised that they require only a small proportion of the deposits
so that they can always keep the promise of payment on demand. The trust is
maintained if people can withdraw their money as cash or use bank deposits for
payments.
On the other side, banks also give loans to people.
People will pay these loans back with interest. Banks also give loans to the
government and earn some interest. The interest earned on loans given by the
bank is the source of revenue.
Will the same rate of interest be charged for all types
of borrowers from a bank? What will happen if some borrowers do not repay the
bank loan? Why do the banks charge interest on the loans they give more than
the interest they pay for deposits?
Types of Loans :
Banks give loans
and advances to different sections of the public like traders, industrialists,
students (educational loans), farmers, artisans etc. Let us examine some of
them.
Rahim is a small farmer who grows paddy on his 4 acres of
land. He needed money for fertilisers and seeds at the time of sowing. So, he
took an agriculture loan of Rs 10,000
from the bank. He mortgaged (gave as security) his harvest. After selling the
harvest, Rahim will return the amount of loan to the bank along with interest
within one year.
Leela wants to buy a flat. She takes a housing loan from
a bank Rs. 8 lakhs by mortgaging her
flat. A certain amount is deducted from her salary every month and paid to the
bank. She will recover the ownership papers of her flat after fully paying off
her bank loan.
Rohit is an employee in a private organization. He wants
to buy a two wheeler to go to office. He takes a vehicle loan from a bank for
rupees 50,000/- by submitting required documents he took loan for 4 year
period. A certain amount is deducted from his salary every month which is
called Equi Monthly Installment (EMI). Bank interest rates vary from loan to loan and depend upon loan period
also.
Shanta is a member of the Self Help Group (SHG). She has
taken a loan from the bank to repair her house. She does not have to keep any
assets as security. The group will ensure that loans are paid back by its
members.
Different people can obtain loans for different
requirements under some rules and conditions of the bank. Interest rate,
security, documents required and the mode of repayment are all part of the
conditions for the loan.
Why do banks ask for security while lending? Which is a
better source of loans Banks or Money Lenders? Why? How is SHG loan different
from an individual loan?
INTERNET BANKING :
Now a days, computers and internet are used everywhere.
In most banks, human and manual teller counters are being replaced by the
Automated Teller Machine [ATM]. Banking activity is being done with computers,
internet and other electronic means of communication which is known as
electronic banking or internet banking. Most of the banks provide debit card,
credit card, net banking and mobile banking services to their customers to use
the banking services online.
Internet banking helps transfer funds from one customer’s
bank account to another customer’s bank account, buying and selling goods,
investments, or repaying loans, payments of electricity, phone and other
utility bills.
With internet banking, a customer is saved from hassles
of travelling, paper work and other kinds of formalities. In just a few clicks,
people can access their account and transfer funds, pay bills etc. People with
hectic schedules prefer Internet Banking.
Mr. Raghu has an account in State Bank of India (SBI),
Secunderabad branch and has registered for online banking facility. To pay his
phone bill, Mr. Raghu logs into the SBI website by entering his user name and
password. He selects the option for online payment of phone bill, enters the
phone number and the amount to be paid. The amount will be debited from his SBI
account and an invoice will be generated.
Paying bills online saves time and energy and also ensures that the bills
are paid in time.
