ASSIGNMENT 2

BANKING AND FINANCIAL SERVICES

SUBMITTED BY,
TEAM 4 & TEAM 5
II BCOM (A&F)
1) What is credit card? What are its benefits? How does it differ from a debit card?
A credit card is a payment card issued to users (cardholders) to enable the
cardholder to pay a merchant for goods and services based on the cardholder's promise to the card
issuer to pay them for the amounts plus the other agreed charges. The card issuer (usually a bank)
creates a revolving account and grants a line of credit to the cardholder, from which the cardholder
can borrow money for payment to a merchant or as a cash advance.
A credit card is a thin rectangular piece of plastic or metal issued by a bank or
financial services company, that allows cardholders to borrow funds with which to pay for goods and
services with merchants that accept cards for payment.

DIFFERNCE BETWEEN CREDIT CARD AND DEBIT CARD

BENEFITS OF CREDIT CARD
1. Easy access to credit:

The biggest advantage of a credit card is its easy access to credit. Credit cards function on a deferred
payment basis, which means you get to use your card now and pay for your purchases later. The
money used does not go out of your account, thus not denting your bank balance every time you
swipe.

2. Building a line of credit

Credit cards offer you the chance to build up a line of credit. This is very important as it allows banks
to view an active credit history, based on your card repayments and card usage. Banks and financial
institutions often look to credit card usage as a way to gauge a potential loan applicant’s
creditworthiness, making your credit card important for a future loans or rental applications.

3. EMI facility

If you plan on making a large purchase and don’t want to sink your savings into it, you can choose to
put it on your credit card as a way to defer payment. In addition to this, you can also choose to pay
off your purchase in equated monthly instalments, ensuring you aren’t paying a lump sum for it and
denting your bank balance. Paying through EMI is cheaper than taking out a personal loan to pay for
a purchase, such as a television or an expensive refrigerator.

4. Incentives and offers

Most credit cards come packed with offers and incentives to use your card. These range from cash
back to rewards point accumulation each time you swipe your card, which can later be redeemed as
air miles or used towards paying your outstanding card dues. Lenders also offer discounts on
purchases made through a credit card, such as on flight tickets, holidays or large purchases, helping
you save.

5. Flexible credit

Credit cards come with an interest-free period, which is a period of time during which your
outstanding credit is not charged interest. Ranging between 45-60 days, you can avail free,
shortterm credit if you pay off the entire balance due by your credit card bill payment date. Thus,
you can benefit from a credit advance without having to pay the charges associated with having an
outstanding balance on your credit card.

6. Record of expenses

A credit card records each purchase made through the card, with a detailed list sent with your
monthly credit card statement. This can be used to determine and track your spending and
purchases, which could be useful when chalking out a budget or for tax purposes. Lenders also
provide instant alerts each time you swipe your card, detailing the amount of credit still available as
well as the current outstanding on your card.
7. Purchase protection

Credit cards offer additional protection in the form of insurance for card purchases that might be
lost, damaged or stolen. The credit card statement can be used to vouch for the veracity of a claim, if
you wish to file one.

2) Explain briefly the role of Co-operative Banks?

The co-operative banks are small-sized units which operate

both in urban and non-urban centres. They finance small borrowers in industrial and trade
sectors besides professional and salary classes. Co-operative banks are financial entities
established on a co-operative basis and belonging to their members. This means that the
customers of a co-operative bank are also its owners. These banks provide a wide range of
regular banking and financial services.

ROLE OF CO-OPERATIVE BANKS:

1. Providing loans to small borrowers and businesses

2. Extending credit facilities

3. Giving advances against shares and debentures

4. Offering easy loans to customers

5. Extends services for the development and welfare of masses

6. Supports and encourages various rural-based agricultural activities

7. Arranging credits for PACs and PUBs

8. Regulating and implementing policies

9. Supervising the banking businesses of co-operatives

10. Encouragement to investments and savings

11. Supports productive borrowings

• Offering easy loans to customer

Cooperative credit system has cheapened the rural credit both directly as well as
indirectly:

(a) Directly, because the cooperative societies charge comparatively low interest rates, and
 (b) Indirectly, because the presence of cooperative societies as an alternative agency has
broken money lender’s monopoly, thereby enforcing him to reduce the rate of interest.

• Supports and encourages various rural-based agricultural activities

Cooperative societies have also greatly helped in the introduction of better
agricultural methods. Cooperative credit is available for purchasing improved seeds,
chemical fertilizers, modern implements, etc. The marketing and processing societies have
helped the members to purchase their inputs cheaply and sell their produce at good prices.

• Providing loans to small borrowers and businesses

The main role of cooperative credit movement is to provide loans to small
borrowers and business an effective alternative to the traditional defective credit system of
the village money lender. The cooperative banks tend to protect the rural population from
the clutches of money lenders. The money lenders have so far dominated the rural areas
and have been exploiting the poor people by charging very high rates of interest and
manipulating accounts.

• Encouragement to savings and investments

Cooperative credit movement has encouraged saving and investment by
developing the habits of thrift among the agriculturists. Instead of hoarding money the rural
people tend to deposit their savings in the cooperative or other banking institutions.

• Supports productive borrowings

Another role of cooperative credit system is to bring a change in the nature
of loans. Previously the cultivators used to borrow for consumption and other unproductive
purposes. But, now, they mostly borrow for productive purposes. Cooperative societies
discourage unproductive borrowing.

3) Define Co-operative banks. Explain its features

Co-Operative Banks are small financial institutions that offer lending facilities to small businesses in
both urban and non-urban regions. These are monitored and regulated by the Reserve Bank of India
(RBI) and come under the Banking Regulations Act, 1949 as well as the banking laws act, 1965.

These banks play a vital role in mobilizing savings and stimulating agricultural investments.
Cooperative credit institutions account for the second largest proportion of 44.6% of total
institutional credit.

These banks are very much useful for the rural people.

FEATURES

• Customer Owned Entities: Co-operative bank members are both customer and owner
of the bank.
• Democratic Member Control: Co-operative banks are owned and controlled by the
members, who democratically elect a board of directors. Members usually have equal
voting rights, according to the cooperative principle of “one person, one vote”.

• Profit Allocation: A significant part of the yearly profit, benefits or surplus is usually
allocated to constitute reserves and a part of this profit can also be distributed to the
co-operative members, with legal and statutory limitations.

• Financial Inclusion: They have played a significant role in the financial inclusion of
unbanked rural masses.

• Government sponsored, supported and subsidized financial agencies in India.

• Works on the principle of cooperation, self-help and mutual help.

• Perform limited banking function.

• Some of them are schedule banks but most of them are non- schedule banks.

• Cooperative banks are financial intermediaries only because a significant amount of

their borrowings is from RBI, NABARD, central and state government and cooperative
apex institutions.

Other functions are;

• They function with the rule of “one member, one vote” and function on
“no profit, no loss” basis

• It performs all the main banking functions of deposit mobilization, the

supply of credit and provision of remittance facilities

• It provides financial assistance to the people with small means to protect

them from the debt trap of the moneylenders

• It is engaged in tasks of production, processing, marketing, distribution,

servicing and banking in India

• It supervises and guides affiliated societies

• Mobilization of funds from their members

• Advance loans to the members

• Rural financing for farming, cattle, milk, hatchery, personal finance, etc.

• Urban financing for Self – employment, Industries Small scale units,

Home finance, Consumer finance, Personal finance
• They function with the rule of “one member, one vote” and function on
“no profit, no loss” basis
 • It performs all the main banking functions of deposit mobilization, the
supply of credit and provision of remittance facilities

• It provides financial assistance to the people with small means to protect

them from the debt trap of the moneylenders

• It is engaged in tasks of production, processing, marketing, distribution,

servicing and banking in India

• It supervises and guides affiliated societies

• Mobilization of funds from their members

• Advance loans to the members

• Rural financing for farming, cattle, milk, hatchery, personal finance, etc .

• Urban financing for Self – employment, Industries Small scale units,

Home finance, Consumer finance, Personal finance

4) Discuss the service rendered by Foreign bank?

Foreign baking means the opening of banks outside the country of origin.
International banks provide their customers with confidentiality, with choice, it offers reduced
complexity and a tax-efficient international base for managing customers’ money.

From managing the risk, financing, and paperwork associated with trade transactions to remitting
cash balances and establishing local banking services, international banks offer a comprehensive
range of services to help the company to operate around the world.

SERVICES PROVIDED:

• Trade Finance

Trade finance experts can help customers to export business, even in tough market
conditions. Using public and private insurance programs, International banking services can
put together the financing package client need to complete his/her sale.

• Foreign Currency and Exchange Services

When a client’s business strategies need to stretch beyond borders, turn to international
banking services.
 As a market maker in all major and most emerging market currencies, international banking
services can handle transactions up to a certain limit.
• International Correspondent Banking
With a network of correspondent banks worldwide, international banking services can help to
manage overseas banking needs.
International banks always work on strengthening relationships with a wide range of
international financial institutions.

• Online Services

Conducting business overseas is never simple.

Whether the client is an importer or an exporter, he/she expend a great deal of time and
resources on the document and transaction management.
That is why international banks have developed a set of online resources to help customers
to manage these processes more efficiently.

• Strategic Sources

When dealing with buyers’ suppliers in other countries, the rules and regulations involved can
often seem like a confusing maze of information and requirements.
International banking services help the client to navigate that maze by introducing strategic
sources- companies and agencies that can provide a full range of services to assist with his
non-bank, trade services needs.

• Import and Export Services

Import and export services support and simplify international commercial goods purchases
and sales.
Range of international banking services can streamline document exchange, reduce payment
or collection risks, and facilitate financial transactions almost anywhere in the world.

• Global Cash Management Services

If clients have international receivables and payables, international banking service has
powerful tools that can improve cash flow between accounts
.
With $75 billion of transfer activity, every day and over 48. million wire transfers take place
in a year.

• International Bank Account Number (IBAN)

If a client organization conducts business with corporations located in the European Union
(EU), he/she may have been asked to remit payment for goods and services to their
banking provider using an IBAN (international bank Account Number) to direct the
payment to his/her counterparty.

• Remittances
 Remittance is a facility by which the bank makes funds available from a customer at one place
to him or anyone authorized by him, at another place within INDIA and abroad.
International remittances can be inward or outward. International inward remittances ensure
the quick and safe delivery of funds from exchange houses and banks to beneficiaries in India.

When any person, firm, organization, or resident in India desires to transfer funds to any
place outside, it gives rise to foreign outward remittances.

• SWIFT

SWIFT enables its users to exchange automated, standardized financial information securely
and reliably, thereby lowering costs, reducing operational risk, and eliminating operational
inefficiencies.
Whether clients are considering the use of the SWIFT file act to fulfil the company’s file
transmission connections or simply need prior and/or current day account reporting via SWIFT
statements, as an active member of SWIFT, international banks can provide those services.

5) BRIEFLY EXPLAIN THE ORIGIN OF BANKING

The word ‘bank’ is used in the sense of a commercial bank. It is of Germanic origin though some
persons trace its origin to the French word ‘Banqui’ and the Italian word ‘Banca’. It referred to a
bench for keeping, lending, and exchanging of money or coins in the market place by money
lenders and money changers.

There was no such word as ‘banking’ before 1640, although the practice of safekeeping and
savings flourished in the temple of Babylon as early as 2000 B.C. Chanakya in his Arthashastra
written in about 300 B.C. mentioned about the existence of powerful guilds of merchant bankers
who received deposits, and advanced loans and issued hundis (letters of transfer). The Jain
scriptures mention the names of two bankers who built the famous Dilware Temples of Mount
Abu during 1197 and 1247 A.D.

The first bank called the ‘Bank of Venice’ was established in Venice, Italy in 1157 to finance the
monarch in his wars. The bankers of Lombardy were famous in England. But modern banking
began with the English goldsmiths only after 1640. The first bank in India was the ‘Bank of
Hindustan’ started in 1770 by Alexander & Co., an English agency house in Calcutta which
failed in 1782 with the closure of the agency house. But the first bank in the modern sense was
established in the Bengal Presidency as the Bank of Bengal in 1806.

History apart, it was the ‘merchant banker’ who first evolved the system of banking by trading in
commodities than money. Their trading activities required the remittances of money from one
place to another. For this, they issued ‘hundis’ to remit funds. In India, such merchant bankers
were known as ‘Seths’.

The next stage in the growth of banking was the goldsmith. The business of goldsmith was such
that he had to take special precautions against theft of gold and jewellery. If he seemed to be an
honest person, merchants in the neighbourhood started leaving their bullion, money and
ornaments in his care. As this practice spread, the goldsmith started charging something for
taking care of the money and bullion.

As evidence for receiving valuables, he issues a receipt. Since gold and silver coins had no marks
of the owner, the goldsmith started lending them. As the goldsmith was prepared to give the
holder of the receipt and equal amount of money on demand, the goldsmith receipt became like
cheques as a medium of exchange and a means of payment.

The next stage in the growth of banking is the moneylender. The goldsmith found that on an
average the withdrawals of coins were much less than the deposits with him. So, he started
advancing the coins on loan by charging interest. As a safeguard, he kept some money in the
reserve. Thus, the goldsmith-money- lender became a banker who started performing the two
functions of modern banking, that of accepting deposits and advancing loans.