Basics of Banking Quiz

Basics of Banking

• Banking is a financial institution that receives deposits and provides loans to eligible customers.
• Banks offer services like wealth management, currency exchange, and safe deposit.
• There are two main types of banks: commercial/retail banks and investment banks.
• Banks are generally regulated by either the central government or central bank (e.g., The Reserve Bank of India).

Bank Assets - Loans and Advances

• Banks provide short-term advances to meet customers' immediate needs.
• Loans are long-term funds offered to customers for larger plans and projects.
• Loans and advances are included under credit facilities.
• Cash Credit (CC): A short-term loan to companies.
• Overdraft: Allows an account holder to withdraw more money than their account balance, up to an approved limit.
• Discounting Bills of Exchange: Banks advance money to the holder of a bill of exchange before it matures.

Introduction to ATMs

• ATMs in India are part of the National Financial Switch network, connecting over 236,199 ATMs nationwide.
• The first ATM in India was established in 1987 by HSBC Bank in Mumbai.
• Several banks (e.g., Bank of India, Union Bank of India, Citibank) formed ATM-sharing networks.
• Tata Communications initiated the IndiCash ATM network, focusing on rural locations.

White Label ATMs

• White Label ATMs don't bear a bank's name, but rather cooperate with other entities (e.g., TCPS, card payment network operators like RuPay).
• The setup involves multiple parties: the white label operator, the card payment operator, and a sponsor bank.

Floating ATMs

• The State Bank of India introduced floating ATMs in Kerala, using ferries to reach remote areas.
• The method uses Reliance Infocomm's CDMA technology for connectivity.
• The bank also has ATMs in high-altitude locations like Leh.

Bank's Liabilities - Deposits

• Demand Deposits: Current Accounts are used for large transactions and do not offer interest. Business owners frequently use this account type.
• Savings Accounts: Designed for individuals with lower incomes. Savings accounts offer a nominal interest rate.
• Zero Balance Accounts: Accounts that do not require a minimum balance.
• Time Deposits (Fixed Deposits): Accounts with fixed terms where the money cannot be withdrawn before the maturity date. These yield higher interest rates compared to savings accounts. Premature withdrawal penalties can apply in some instances.
• Recurring Deposits (RDs): Customers deposit a fixed amount on a regular basis (e.g., monthly). The entire amount, including interest, is paid upon maturity.

Primary and Secondary Bank Functions

• Primary Functions:
• Accepting deposits (e.g., current, savings, fixed, recurring) is vital for commercial banks.
• Secondary Functions:
• Banks act as agents for customers, handling remittances, collections, and securities transactions. They also offer general utility services like lockers, traveler's cheques, and gift cheques.