ADDITIONAL NOTES - CH.4 BANKING SERVICES PDF

CH.4 –BUSINESS SERVICES (Additional notes – Banking services) Banking means ‗Accepting, for the purpose of lending and investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheques, draft, order or otherwise....

CH.4 –BUSINESS SERVICES (Additional notes – Banking services) Banking means ‗Accepting, for the purpose of lending and investment of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheques, draft, order or otherwise. FUNCTIONS OF COMMERCIAL BANKS 1. PRIMARY FUNCTIONS 2. SECONDARY FUNCTIONS 3. ELECTRONIC BANKING SERVICES I ) PRIMARY FUNCTIONS Accepting deposits Advancing loans A. ACCEPTING DEPOSITS i) Fixed Deposit or Time deposit account: Money is deposited in this account for a fixed period the depositor gets a fixed deposit receipt. The receipt contains the name of the depositor the Amount deposited the rate of interest and the period for which the deposit is made. This receipt is not transferable. If the depositor needs this money before the completion of the deposit time period, then Bank refunds this money to him after charging some discount. The money deposited in this account earns maximum interest. The rate of interest is determined by the banks as per the requirement. Money deposited in this account is also known as Time Deposit or Time Liability of the Bank ii) Current account: Current deposit Accounts are opened by businessmen. In this account a depositor can deposit money any number of time and can withdraw it as and when he requires it. As the deposit is repayable on demand, it is also known as demand deposit. Withdrawals are always made by cheque. No interest is paid on current accounts. Rather charges are taken by bank for services rendered by it. iii) Savings deposits account: This account is to encourage the small savings. A person can open this account by depositing a small sum of money. The depositor can withdraw money from his account and make additional deposits at will. The bank pays interest on this account which is less than that of the fixed deposit account. Money deposited in this account is known as Demand Liability of the Bank  iv) Recurring deposits account: The aim of recurring deposit also is to encourage regular savings by the people. In this type of account a depositor deposits a fixed amount, of money for a fixed period say Rs. 1000 every month for a fixed period. In Recurring Deposit, a person has an opportunity to build up saving through regular monthly deposits of fixed sum over a period of time. The money is deposited on monthly basis. This money cannot be withdrawn before the expiry of a fixed term except in certain conditions. Amount of interest which is received on the money deposited in this account is the re-deposited along with the principle. This account attracts higher interest in comparison to other accounts like fixed deposit account. The money deposited in this account is known as time liability of the bank. v) Multi option deposit account: Multi option deposit account is a combination of savings and fixed deposits account. It is a type of savings bank account in which deposit in excess of a particular limit get automatically transferred into fixed deposit or term deposit. On the other hand, in case adequate fund is not available in the savings bank account so as to honour a cheque that we have issued the required amount gets automatically transferred from fixed or term deposit to the savings bank account. It is also called auto- sweep facility. The balance amount continues as fixed deposit and earns interest as per the existing rate of interest. It is to be noted that one can earn higher rate of interest from the fixed deposit account than from a savings bank account. Therefore, the account holder has twin benefits from this account- 1. Can earn more interest and 2. It lowers the risk of dishonouring a cheque B. ADVANCING LOANS Cash credit: Cash credit is a short-term business loan. It is meant for entrepreneurs wanting to get quick working capital.Under this a borrower is allowed to withdraw a specific amount on the basis of a specific security like against the current assets and other securities. The bank opens an account in the name of the borrower and allows him to withdraw the borrowed money from time to time subject to the sanctioned limit. Interest is charged on the amount actually withdraw. Overdraft: The customer who maintains a current account with the bank takes permission from the bank to withdraw more amount than deposited in his account. The extra money withdrawn is called overdraft. This facility is available to trustworthy customers for a small period. This facility is usually given against the security of some assets or on the personal security of the customer. Interest is charged on the actual amount overdrawn by the customer. Ex. If your bank account has Rs. 10 lakh and you withdraw 12 lakh for business purpose , an overdraft loan is a by- default loan for extra Rs. 2 lakh. II ) SECONDARY FUNCTION - REMITTANCE OF FUNDS (TRANSFER OF FUNDS) THROUGH FOLLOWING DOCUMENT. Bank draft/ demand draft: A bank draft is a financial instrument with the help of which money can be remitted from one place to another. Anyone can obtain a bank draft after depositing the money in the bank. The bank charges some commission in lieu of issuing a bank draft. The amount of commission varies from bank to bank. The bank issues a draft for the amount on its own branch at other places or on other banks (only in case of tie-up with those banks) at those places. The payee can present the draft on the drawee bank at his place and collect the money. As in case of bank draft, funds are withdrawn directly from a bank’s fund, not from an individual account, it is less risky for a creditor. It will be honoured by the drawee bank unless the draft is forged. III.ELECTRONIC BANKING SERVICES/E-BANKING: The services provided by the banks on the internet, called e-banking. E-banking is electronic banking or banking using electronic media. OR Using computer and internet in the functioning of the banks is called electronic banking or E - banking. It lowers the transaction cost, adds value to the banking relationship and empowers customers. Thus, e-banking is a service provided by many banks, that allows, a customer to conduct banking transactions, such as managing savings, checking accounts, applying for loans or paying bills over the internet using a personal computer, mobile telephone or handheld computer. Because of these services the customers do not need to go to the bank every time as it has made transactions with the bank possible at any time and from any place.The chief electronic services are as follows: DIGITAL PAYMENTS: Digital payment refers to the transaction of taking and giving cash through the electronic medium in cashless manner. TYPES OF DIGITAL PAYMENTS: 1. Banking Cards- Banks may issue 2 types of cards: debit cards and credit cards. The brief information about them is as following: a. Debit card: The debit card is directly linked with our bank account. By using this card, the desired amount gets transferred from our bank account to the bank account of the receiver. This card is like the prepaid SIM card, that is that only the payment of that much amount can be made by the debit card as much amount is there in our bank account. b. Credit card :This card is a credit facility provided to the card holder by the bank.The limit of credit facility is fixed in accordance the financial position of the card holder.By using the credit card the payment can be made up to the pre- decided limit.The use of this card makes the bank transfer , up to a limit, the desired amount into the bank account of the receiver.The credit card is a contract between the bank and card Holder according to which the card holder returns / repays the used amount after the decided time limit to the bank. 2. Unstructured Supplementary Service Data (USSD) - USSD is such a digital service through the medium of which it is possible to do banking transaction in India even without the Internet and smart phone. The use of USSD can be done with any mobile of basic features. To take advantages of this facility the mobile number of the user must be linked or registered with his bank account. By dialing *99# with registered mobile number with the help of menu displayed on the screen, the user can perform the functions like balance inquiry, fund transfer etc. 3. Unified Payment Interface (UPI) - UPI is a mobile based software /application in which funds can be transferred between different bank accounts anywhere and anytime without the need to enter bank account details. 4. Aadhaar Enabled Payment System (AEPS) - AEPs is such a digital payment system under which the user can do financial transaction by presenting his Aadhar Number and Fingerprint/Iris. The user can use this facility only when his bank account is linked with the Aadhar Card. The use of this facility is mainly done for the following: Balance Enquiry, Cash Deposit, Cash Withdrawal, Aadhaar To Aadhaar Fund Transfer. 5. BHIM (Bharat Interface for Money – It is a mobile app developed by National Payments Corporation Of India (NPCI). The app supports all Indian banks through immediate payment service infrastructure and allows the user to instantly transfer money between bank accounts of any two parties. 6. Mobile wallet- It is a virtual wallet which collects and stores the data about the payments on a mobile device. Such wallet is an convenient way for a person to conduct in-store and online payments, the shopper can use this service with the traders that also employ (use) the Mobile Wallet. 7. Point of sale (POS) – It refers to the payment counter in a retail store where customers pay for their purchased goods. It refers to the machines that are installed at the stores where purchases are made by the customers using debit or credit card. It is usually a handheld device that reads banking cards. 8. Micro ATM – It is a mini version / portable version of an ATM that allows users to make transactions using their credit and debit cards. Micro ATMs are like modified point of sales terminals. This terminal can connect to banking network via GPRS to perform banking transactions. 9. Prepaid cards - These cards let you spend money without having it linked to a bank account. Debit cards are linked to your account, while prepaid cards aren’t and instead require you to load money onto the card. Once the money is spent, you can’t spend anymore until you reload it.All the usual banking transactions like withdrawals, transfers, card payments, etc. can be carried out. COMMUNICATION SERVICES TYPES OF POSTAL SERVICES a) Mail – The primary function of post office is collection, processing , transmission and delivery of mail which includes letters , post cards , inland letter cards. b) Registered Post - If the sender wants a proof of delivery to confirm that it has been received by the addressee , registered post with acknowledgement due is written on any postal article. The acknowledgement card is delivered back to the original sender by ordinary post. c) Parcel – An object wrapped in a paper in order to be carried by post d) Speed post – the Indian government has launched a new scheme of postal service called speed post for providing a time bound delivery of letters and parcels weighing upto 35kg between specified stations in India as compared to ordinary post. e) Courier – A courier company is one which delivers messages packages and mail and is known for their speed, security, tracking services and specialisations.