1.

INTRODUCTION TO BANKING

A bank is a financial institution that accepts deposits from the public and creates a demand deposit while
simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through
capital markets.

Because banks play an important role in financial stability and the economy of a country, most
jurisdictions exercise a high degree of regulation over banks. Most countries have institutionalized a system
known as fractional reserve banking, under which banks hold liquid assets equal to only a portion of their
current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to
minimum capital requirements based on an international set of capital standards, the Basel Accords.

Banking in its modern sense evolved in the fourteenth century in the prosperous cities of Renaissance
Italy but in many ways functioned as a continuation of ideas and concepts of credit and lending that had their
roots in the ancient world. In the history of banking, a number of banking dynasties – notably, the Medici’s,
the Fugger’s, the Welders, the Berenberg’s, and the Rothschilds – have played a central role over many
centuries. The oldest existing retail bank is Banca Monte Dei Paschim di Siena (founded in 1472), while the
oldest existing merchant bank is Berenberg Bank (founded in 1590.

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 DEFINATIONS OF BANKING

“Banking means the accepting, for the purpose of lending or investment of deposits of money from the
public, repayable on demand or otherwise and withdrawal by cheque, draft, order or otherwise.”

-The banking regulation Act, 1949, Section 5 (b)

“Banking is a manufacturer of credit and machine for facilitating exchange

-Horace white

“The business of banking may be defined as dealing in money and instrument of credit.”

-Kenneth Makenzie

“A bank is an establishment which makes to individuals such advances of money or other means of payment
as may be required and safely mode and to which individual entrust money or means of payment when not
required by them for use.”

-Prof. kintey

“By banking in the most general sense is meant the business of receiving conserving and utilizing the funds
of the community or of any special section of it.”

-Willis and Begown

“A bank is a financial intermediary in loans and debts.”

-Carneros’s

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 2. OBJECTIVES OF BANK

➢ Business objective
➢ Social objective

• BUSINESS OBJECTIVES
➢ Making profits
➢ Providing services
➢ Currency issue.
➢ Creation of transaction media.
➢ Receiving deposit
➢ Making loan
➢ Ensuring safety
➢ Investment

• SOCIAL OBJECTIVE
➢ Creating savings
➢ Capital formation
➢ Industrialization
➢ Employment
➢ Developing living standard
➢ Economic development

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 3. FEATURES OF BANKING

➢ Deals with money –

The bank Accept deposits from the public and advancing them as loans to the needy people. The
deposits may be current, fixed saving etc.
➢ Provide loans –
The banks are the institution that can create credit i.e., creation of lending Thus ‘creation of credit
is the unique features of banking.
Banks make extra money by providing loans for different product to the loan. The banks Makes the
extra money by lending money to the eligible person at certain rates. Nowadays, banks provide loans
for various requirements such as study loans, car loans, home loans, personal loans, etc. Different banks
provide different loans at different interest rates. You can Compare the interest rates of different rates.
➢ Middle man –
Banks serve as a middle man from the money surplus unit to be money deficit unit. They are
intermediaries, who transfer funds from savers to investors through grants for business, commerce,
education, housing etc.
➢ Deposits must be withdrawable –
The deposits are usually withdrawable on demand. It may be withdrawable by cheque, draft or
otherwise.
➢ Internet services –
Bank is that modern banks are also providing internet services the development of the internet and its
inclusion in the banking sector has made it even more easy for people to carry out various transactions.
Banks are providing online services through their apps. You can pay bills, buy food, go shopping
without having cash with you. With the help of banking apps, you can pay for everything online.
Nowadays, more and more banks are taking their business online. It helps in making safe and risks
free transactions, and there are fewer chances of stealing taxes. There are specific terms for these types
of transactions, such as internet banking and mobile banking.
➢ Commercial in Nature – Since
all the banking activities of Commercial banks are carried on with the of Making profit, it is regarded as a
commercial institution.
The bank uses our money to lend it to others or by investing it in profitable businesses to make profits.
If you think your money is sitting in a bank’s locker, then you are wrong.
You might have digits of the money mentioned in your passbook, but you might be rotating between one
person to another to make more money to the investor

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➢ Size transformation –
Bank Create a reservoir of fund from the numerous small deposits collect from customer and then
provide large loan to Investor.
➢ Nature of Agent-
Beside the basic function of accepting deposits and lending money as a loan, bank, possess the
characteristics of an agent because of its various agency services.

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 4. FUNCTIONS OF BANK

A. Primary Functions of banks

The primary functions of a bank are also known as banking functions. They are the main functions of
a bank. These primary functions of bank are explained below.
1. Accepting Deposits
The bank collects deposits from the public. These deposits can be of different types, such as: -
A. Saving Deposits
This type of deposits encourages saving habit among the public. The rate of interest is low. At present it is
about 4% p.a. withdrawals of deposits are allowed subject to certain restrictions. This account is suitable to
salary and wages earners. This account can be opened in single name or in joint names.

B. Fixed Deposits

Lump sum amount is deposited at one time for a specific period. Higher rate of interest is paid, which varies
with the period of deposit. Withdrawals are not allowed before the expiry of the period. Those who have
surplus funds go for fixed deposit.

C. Current Deposits

This type of account is operated by businessmen. Withdrawals are freely allowed. No interest is paid. In fact,
there are service charges. The account holders can get the benefit of overdraft facility.

This type of account is operated by salaried persons and petty traders. A certain sum of money is
periodically deposited into the bank. Withdrawals are permitted only after the expiry of certain period. A
higher rate of interest is paid.

2. Granting of Loans and Advances

The bank advances loans to the business community and other members of the public. The rate charged is
higher than what it pays on deposits. The difference in the interest rates (lending rate and the deposit rate) is
its profit.

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The types of bank loans and advances are: -

Overdraft

Cash Credits

Loans

Discounting of Bill of Exchange

a. Overdraft

This type of advances is given to current account holders. No separate account is maintained. All entries are
made in the current account. A certain amount is sanctioned as overdraft which can be withdrawn within a
certain period of time say three months or so. Interest is charged on actual amount withdrawn. An overdraft
facility is granted against a collateral security. It is sanctioned to businessman and firms.

b. Cash Credits

The client is allowed cash credit up to a specific limit fixed in advance. It can be given to current account
holders as well as to others who do not have an account with bank. Separate cash credit account is
maintained. Interest is charged on the amount withdrawn in excess of limit. The cash credit is given against
the security of tangible assets and / or guarantees. The advance is given for a longer period and a larger
amount of loan is sanctioned than that of overdraft.

c. Loans

It is normally for short term say a period of one year or medium term say a period of five years. Now-a-days,
banks do lend money for long term. Repayment of money can be in the form of Instalments spread over a
period of time or in a lumpsum amount. Interest is charged on the actual amount sanctioned, whether
withdrawn or not. The rate of interest may be slightly lower than what is charged on overdrafts and cash
credits. Loans are normally secured against tangible assets of the company.

d. Discounting of Bill of Exchange

The bank can advance money by discounting or by purchasing bills of exchange both domestic and foreign
bills. The bank pays the bill amount to the drawer or the beneficiary of the bill by deducting usual discount
charges. On maturity, the bill is presented to the drawee or acceptor of the bill and the amount is collected.

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B. Secondary Functions of Banks

The bank performs a number of secondary functions, also called as non-banking functions.

These important secondary functions of banks are explained below

1. Agency Functions

The bank acts as an agent of its customers. The bank performs a number of agency functions which includes:

1.Transfer of Funds

2.Collection of Cheques

3.Periodic Payments

4. Portfolio Management

5.Periodic Collections

6.Other Agency Functions

a. Transfer of Funds

The bank transfer funds from one branch to another or from one place to another.

b. Collection of Cheques

The bank collects the money of the cheques through clearing section of its customers. The bank also collects
money of the bills of exchange.

c. Periodic Payments

On standing instructions of the client, the bank makes periodic payments in respect of electricity bills, rent,
etc.

d. Portfolio Management

The banks also undertake to purchase and sell the shares and debentures on behalf of the clients and
accordingly debits or credits the account. This facility is called portfolio management.

e. Periodic Collections

The bank collects salary, pension, dividend and such other periodic collections on behalf of the client.

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f. Other Agency Functions

They act as trustees, executors, advisers and administrators on behalf of its clients. They act as
representatives of clients to deal with other banks and institutions.

2. General Utility Functions

The bank also performs general utility functions, such as: -

1. Issue of Drafts, letters of credits

2. Lockers Facility
3. Underwriting of Shares
4. Dealings in foreign Exchange
5. Project Reports
6. Social utility Functions

a. Issue of Drafts and Letter of Credits

Banks issue drafts for transferring money from one place to another. It also issues letter of credit, especially
in case of, import trade. It also issues travellers' cheques.

b. Locker Facility

The bank provides a locker facility for the safe custody of valuable documents, gold ornaments and other
valuables.

c. Underwriting of Shares

The bank underwrites shares and debentures through its merchant banking division.

d. Dealing in Foreign Exchange

The commercial banks are allowed by RBI to deal in foreign exchange.

e. Project Reports

The bank may also undertake to prepare project reports on behalf of its clients.

f. Social Welfare Programmes

It undertakes social welfare programmes, such as adult literacy programmes, public welfare campaigns, etc.

g. Other Utility Functions

It acts as a referee to financial standing of customers. It collects creditworthiness information about clients of
its customers. It provides market information to its customers, etc. It provides travellers' cheque facility.
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 5.BANKING AND ITS HISTORY

The word bank was borrowed in middle English from middle French banquet, from old Italian bank, from
old high German bank, bank “bench, counter”. Benches were used as desks or exchange counters during the
Renaissance by Florentine bankers, who used to make their transactions atop desks covered by green
tablecloths.

One of the oldest items found showing money-changing activity is a silver Greek drachma coin from ancient
Hellenic colony trapezes on the Blank Sea, modern Trabzon, c. 350-325BC, presented in the British
Museum in London. The coin shows a bankers table (trapeze) laden with coins, a pun on the name of the
city. In fact, even today in modern Greek the word Trapeze means both a table and a bank.

Another possible origin of the word is from Sanskrit words ‘bay’ (expense) and ‘once’ (Calculation) =
Badalona. This word still survives in Bangla, which is one of Sanskrit ‘s child languages. Such expense
calculations were the biggest part of mathematical treaties written by Indian mathematicians as early as 500
B.C.

The word-bank is originally derived from German word- bank meaning a joint stock fund which was
Italianized into- Banco when the German ‘s were masters of a great part of Italy. This appears to be more
possible.

Banking activities were sufficiently important in Babylonia in the second millennium B.C. that written
standards of practice were considered necessary. These standards were part of the code of Hammurabi- the
earliest known formal laws. Deposits were not of money but of cattle, grain or other crops and eventually
precious metals. Nevertheless, some of the basic concepts underlying today ‘s banking system were in these
ancient arrangements. A wide range of deposits was accepted, loans were made, and borrowers paid interest
to lenders.

Similar banking type arrangements could also be found in ancient Egypt. These arrangements stemmed from
the requirements that gain harvests be stored in centralized State warehouses. Depositors could use written
orders for the withdrawal of a certain quantity of gain as a means of payment. This System worked so well
that it continuous to exist even after private banks dealing in coinage and precious metals were established.
Modern-day banking can be traced to practices in the medieval Italian cities of Florence, Venice, and Genoa.
The Italian bankers made loans to princes, both to finance wars and their lavish lifestyles, and to merchants
engaged in international trade. The Bardi and Peruzzi families were dominant in Florence in the 14th century
and established branches in other parts of Europe to facilitate their trading activities.

Much of the international business of the medieval banks was carried out through the use of bills of
exchange. At the simplest level, this involved a creditor providing local currency to the debtor in return for a
bill stating that a certain amount of another currency was payable at a future date-often at the next big

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international fair. Because of the church prohibition on directly charging interest, the connection between
banking and trade was essential. The bankers would take deposits in one city, make a loan to someone
transporting goods to another city, and then take repayment at the destination. The repayment was usually in
a different currency, so it could easily incorporate what is essentially an interest payment, circumventing the
church prohibitions. For example, a Florentine bank would lend 1000 florins in Florence requiring
repayment of 40,000 pence in three months in the bank ‘s London office. In London, the bank would then
loan out of the 40,000 pence to be repaid in Florence at a rate of 36 pence per florin in three months. In six
months, the bank makes 11.1 percent – that’s an annual rate of 23.4 percent. It is also interesting to note that
a double- entry bookkeeping system was used by these medieval bankers and that payments could be
executed purely by book transfer.

Banking in the modern sense of the word can be traced to mediaeval and early renaissance Italy, to the
rich cities in the north like Florence, Lucca Siena, Venice and Genoa. The Bardi and Peruzzi families
dominated banking in 14th century Florence, establishing branches in many other parts of Europe. One of
the most famous Italian banks was the Medici bank, set up by Giovanni di ' Medici in 1397. The earliest
known state deposit bank, Banco di San Giorgio (bank of St. George), was founded in 1407 at Genoa, Italy.

Bank is financial institution and a financial intermediate that accepts deposits and channel those
deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank is
connection between customers that have capital deficits and customers with capital surpluses. Due to their
influence within the financial system and an economy, banks are generally highly regulated in most
countries. Most banks operate under a system known as fractional reserve banking where they hold only a
small reserve of the funds deposited and lend out the rest for profit. they are generally subject to minimum
capital requirements which are based on an international set of capital standards, known as the Basel
accords. The oldest Bank still in existence is monte deipaschidisiena, headquartered in Hamburg (1590)
and Sverige’s Riks bank of Sweden (1668). Banking in its modern sense evolved in such cities of
renaissance Italy, search s Florence, Venice and Genoa. In the history of banking, a number of banking
dynamics- among them notably Medici, Fugger, Welser, Berenberg, Baring and Rothschild- have played a
central role over many countries.

During the 17th and 18th centuries the Dutch and British improved upon Italian banking techniques.
Ok development obtain credit to the London goldsmith around this time was adoption of fractional reserve
banking. By the middle of the seventeenth century, the civil war had resulted in the demise of the
Goldsmiths' traditional business of making objects of gold and silver. Forced to find a way to make a living,
and having the means to safely store precious metal, they turned to accepting deposits of precious metals for
safekeeping. The goldsmith would then issue a receipt for the deposit. At first, these receipts circulated as a
form of money. But eventually, the goldsmith realized that since not all of the depositors would demand
their gold and silver simultaneously, they could issue more receipts than that they metal in their vault.
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 Bank became an integral part of the US economy from the beginning of the republic. Five years after
the declaration of the independence, the first chartered Bank was established in Philadelphia in 1781

At first, bank charters could only be obtained through an act of legislation. But, in 1838, New York adopted
the free banking Act, which allowed anyone to engage in banking business as long as they met certain legal
specifications. As free banking quickly spread to other states, problems Associated with the system soon
became apparent. For example, banks incorporated under these state laws had the right to issue their own
bank notes. This led to a multiplicity of notes-many of which proved to be worthless in the all-too-common
event of a bank failure.

The collapse of jay Cooke and co., the largest bank in the U.S. at that time, in September 1873 triggered a
panic on the stock exchange. Cooke ‘s bank was the exclusive agent for the sale of Northern pacific Railroad
bonds. When the firm could not sell a sufficient number of railroad bonds to investors to cover its
obligations, the stock market reacted negatively, and runs on serval other large financial institutions led to
their failure. The Coinage Act of 1873 depressed the price of silver, hurting the interests of U.S. silver mines
and further contributing to the country ‘s economic problems. This economic crisis led to a recession that
lasted until 1879. The collapse of the Ohio life insurance and trust company and a bank panic in the fall of
1857 led to an economic crisis. More than 5,000 businesses failed during the first year of the panic. Some
important dates and events marking significant impact on the history of banking:

1837: Michigan and New York pass the first free banking laws 1846:

The Independent treasury is established.

1863: Congress passes the National Banking Act in USA 1865: The Civil War ends and the nation has a dual
banking system.

1873: The collapse of a large bank leads to a recession; the country undergoes repeated financial cries
through the rest of the century

1908: Congress sets up the national monetary commission to look into the country financial system.

1913: The Federal Reserve Act established a new central bank for the nation- the Federal Reserve System.

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 6.BANKING IN INDIA

The Indian banking system consists of commercial banks, which may be public scheduled or non-
scheduled, private, regional, rural and cooperative banks. The banking system in India defines banking
through the Banking Companies Act of 1949.

In this post, we take a look at the evolution of banks in India, the different categories and the impact of
nationalised banks.

Phase 1: The Pre-Independence Phase

There were almost 600 banks present in India before independence. The first bank to be established as the
Bank of Hindustan was founded in 1770 in Calcutta. It closed down in 1832. The Oudh Commercial Bank
was India's first commercial bank in the history of the evolution of banking in India.

A few other banks that were established in the 19th century, such as Allahabad Bank (Est. 1865) and Punjab
National Bank (Est. 1894), have survived the test of time and exist even today.

Some other banks like the Bank of Bengal, Bank of Madras, and Bank of Bombay - established in the early
to mid-1800s - were merged as one to become the Imperial Bank, which later became the State Bank of
India.

Phase 2: The Post-Independence Phase

After independence, the evolution of the banking system in India continued pretty much the same as before.
In 1969, the Government of India decided to nationalise the banks under the Banking Regulation Act, 1949.
A total of 14 banks were nationalised, including the Reserve Bank of India (RBI).

In 1975, the Government of India recognised that several groups were financially excluded. Between 1982
and 1990, it created banking institutions with specialised functions in line with the evolution of financial
services in India.

NABARD (1982) – to support agricultural activities

EXIM (1982) – to promote export and import

National Housing Board – to finance housing projects

SIDBI – to fund small-scale industries

Phase 3: The LPG Era (1991 Till Date)

From 1991 onwards, there was a sea change in the Indian economy. The government invited private
investors to invest in India. Ten private banks were approved by the RBI. A few prominent names which
exist even today from this liberalisation are HDFC, Axis Bank, ICICI, DCB and IndusInd Bank.

13
In the early to mid-2000s, two other banks, Kotak Mahindra Bank (2001) and Yes Bank (2004), received
their licenses. IDFC and Bandhan banks were also given licenses in 2013-14.

Other notable changes and developments during this era were:

Foreign banks like Citibank, HSBC and Bank of America set up branches in India.

The nationalisation of banks came to a standstill.

RBI and the government treated public and private sector banks equally.

Payments banks came into existence.

Small finance banks were permitted to set up their branches throughout India.

Banks began to digitalise transactions and various other related banking operations.

Reasons Why Banks Were Nationalised in India

To get a clearer picture of the impact of nationalisation on the banking industry and the general population,
let's understand why the government decided to nationalise banks:

To Energise Priority Sectors: Banks were collapsing at a fast rate – 361 banks failed between 1947 and 1955,
which converts to about 40 banks a year! Customers lost their deposit with no chance of recovering them.

A Neglected Agricultural Sector: Banks favoured large industries and businesses and neglected the rural
sector. Nationalisation came with a pledge to support the agricultural sector.

Expansion of Branches: Nationalisation facilitated the opening of new branches to ensure maximum
coverage of banks throughout the country.

Mobilisation of Savings: Nationalising the banks would allow people more access to banks and encourage
them to save, injecting additional revenue into a cash-strapped economy.

Economic and Political Factors: The two wars in 1962 and 1965 had put a tremendous burden on the
economy. The nationalisation of Indian banks would give the economy a boost through increased deposits.

The Positive Effects of Nationalisation

The nationalisation of Indian banks was one of the most significant events in the evolution of banks in India.
Today, India has 19 nationalised banks.

Here are a few ways that nationalisation benefited the economy:

Increased Savings: There was a sharp increase in savings with the opening of new branches. As national
income rose in the 1970s, gross domestic savings almost doubled.

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Improved Efficiency: The efficiency of banks improved with additional accountability. It also increased
public confidence.

Empowering SSIs: Small scale industries (SSIs) received a boost resulting in a proportionate improvement
in the economy.

Financial Inclusion: The overall statistics of the banking sector and the Indian economy showed a marked
improvement. It reflected on parameters like the share of bank deposits to GDP, gross savings rate, the share
of advances to DGP, and gross investment rate from 1969 to 1991.

Better Outreach: Banks were now no longer only restricted to metropolitan areas. Branches were opened in
the remotest corners of the country.

A Surge in Public Deposits: The increased reach of banks helped small industries, agriculture, and the export
sector grow. This growth was accompanied by a proportionate increase in public deposits.

Elevating the Green Revolution: The Green Revolution, one of the biggest priority items on the
government’s agenda, received a boost thanks to the support that the newly-nationalised banks provided to
the agricultural sector.

Drawbacks of Nationalisation

To provide an unbiased view on the subject, here are a few downsides of nationalisation:

Socio-Economic Challenges: The banks couldn’t provide sufficient support to eradicate poverty or provide
adequate financing to the grassroots levels of society. This was particularly obvious in rural India.

Competition From Private Banks: Despite government support and increased impetus through a rise in
deposits, public sector banks were never able to surpass private banks in performance.

Failure to Achieve Financial Inclusion: Although financial inclusion was the major objective of nationalising
banks, it was not adequately enabled. It was only achieved to a limited extent after the launch of a
government campaign called Jan Dhan Yojana.

List of Banks in India Before Independence

Here is a list of banks before Independence. The small, brief list bears testimony of how few banks existed
during that era:

Bank

Year Established

Allahabad Bank

1865
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 Punjab National Bank

1894

Bank of India

1906

Central Bank of India

1911

Canara Bank

1906

Bank of Baroda

1908

Types of Banks in India

As we wind down our discussion on the evolution of the Indian banking system, we should touch upon the
types of banks that exist in India today. Here are the major categories of banks that you are likely to come
across:

1. Public Sector Banks

The government holds the majority of the shares of a public sector bank. A prime example is the State Bank
of India, with 58.6% of its shares allocated to the Government of India. We could also consider Punjab
National Bank, of which the government holds a stake of 58.87%.

Public sector banks are further divided into nationalised banks and state banks and their associated
organisations.

With nationalised banks, the government has complete control and regulates the bank in all respects. But the
government also has the option to sell shares of these banks. When this happens, the government’s stakes are
reduced.

Sometimes the government becomes a minority in such banks, and then that bank gets listed on the Indian
stock market.

2. Private Sector Banks

Private sector banks are owned by private entities. They came into prominence in the 1990s. Due to the
high-quality service that they offer, these banks present stiff competition to public sector banks.
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3. Small Finance Banks in India

Some niche banks in India provide basic banking services like deposits, lending, and bank transfers. These
are small finance banks and cater to the part of the economy that isn’t being serviced by regular banks, such
as marginal farmers, small industries and other parts of the unorganised sector.

Examples of these banks are Ujjain Financial Services Pvt Ltd in Bangalore and Equites Holdings Pvt Ltd in
Chennai.

4. Payment Banks in India

Payment banks are a new model created by the RBI. These banks can accept restricted deposits but are not
authorised to issue loans or credit cards. They offer both current and savings accounts and can also issue
ATM cards or debit cards.

An example of a payment bank in India is Airtel Payments Bank, set up by Bharti Airtel. Such banks also
have a major role to play in the evolution of e-banking in India as they offer online payment solutions like
mobile payment apps.

The Indian Banking System Drives the Economy

Over the years, Indian banks have transformed the country's bleak financial landscape to feed its growing
economy. Even today, there is no doubt that the Indian banking system is what keeps the country's economy
afloat.

A prime example is the demonetisation of currency notes in 2016. Existing currency notes were demolished
practically overnight, throwing the nation into chaos. Banks helped the economy recover from the shock by
allowing people across the country to exchange the defunct banknotes.

As the banking industry continues to evolve in India, so does its ability to provide robust support to a nation
that is ever hungry for financial development.

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 BANKING STRUCTURE IN INDIA

Indian banking system consists of “non-scheduled banks” and “scheduled banks”. Non-scheduled banks
refer to those that are not included in the second schedule of the Banking Regulation Act of 1965 and thus
do not satisfy the conditions laid down by that schedule. Schedule banks refer to those that are included in
the Second Schedule of Banking Regulation Act of 1965 and thus satisfy the following conditions: a bank
must

(1) have paid up capital and reserve of not less than Rs. 5 lakh and

(2) satisfy the Reserve Bank of India (RBI) that its affairs are not conducted in a

manner detrimental to the interest of its deposits. Scheduled banks consist of “scheduled commercial banks”
and scheduled cooperative banks. The former is further divided into four categories: (1) public sector banks
(that are further classified as “Nationalized Banks and the “State Bank of India (SBI) banks”); (2) private
sector banks (that are further classified as “Old Private Sector Banks” and “New Private Sector Banks” that
emerged after 1991); (3) foreign banks in India, and (4) regional rural banks (that operate exclusively in
rural areas to provide credit and other facilities to small and marginal farmers, agricultural workers and small
entrepreneurs). These scheduled commercial banks except foreign banks are registered in India under the
Companies Act.

The SBI banks consist of SBI and five independently capitalized banking subsidiaries. The SBI is the
largest commercial bank in India in terms of profits, assets, deposits, branches and employees and has 13
head offices governed each by a board of directors under the supervision of a central board. It was originally
established in 1806 when the bank of Calcutta (latter called the Bank of Bengal) was established, and then
18
amalgamated as the Imperial Bank of India after the merger with the bank of Madras and the Bank of
Bombay. The Imperial Bank of India was Nationalized and named SBI in 1955. Nationalized banks refer to
private sector banks that were nationalized (14 banks in 1969 and 6 in 1980) by the central government
compared with the SBI banks, nationalized banks are centrally governed by their respective head offices. In
1993, Punjab National Bank merged another nationalized bank, New Bank of India, leading to a decline in
total number of nationalized banks from 20 to 19. Regional rural banks account for only 4% of total assets of
scheduled commercial banks. As at the end of March 2001, the number of scheduled banks is a follow: 19
nationalized banks, 8 SBI banks, 23 old private sector banks, 8 new private sector banks, 42 foreign banks,
196 regionals rural banks and 67 cooperative banks. But number of scheduled commercial banks in India as
on 31 October, 2012 as follows: 26 public sector banks 20 private sector banks Today, banks claim
themselves as new generation banks on the basis of certain services they render or the time period they have
being formed or bought into existence. But it should not be done so because, it totally depends on how they
function, in terms of implementing strategies, creating and initiating new investment plans managing funds
and non-performing assets, looking on to the way how their work force is recruited and retained by their true
calibre and so on. “New generation banks are not just banks who are involved in the implementing a
new strategy for the sake of survival. But banks who are involved in the process of creating a paradigm
shift to overcome the ever-changing market requirements and customer preferences by the way they
organize the internal and external activities, and initiatives by considering traditional human values and
using modern technology. That may result in creating larger revenues by properly investing and
managing the funds to create optimum profit and goodwill for the long run of the business can be
considered and proved as sustainable” .Similarly, ages pass on and so does time, thus organizations
who are involved in creating change and surviving the change by implementing innovative and effective
strategies to serve the future generations to come can be considered so. Thus, in this process the bank
that excels with its innovative strategy is to be considered as a new generation bank as those strategies used
to exhibit customer service and welfare is just a marketing strategy which brings in customers but on a
long run it’s only the internal affairs and money management strategy that helps a business retain its position
in the market.

DEVELOPMENT IN NEW GENERATION BANKS

Electronic Payment Services –E Cheques

Nowadays we are hearing about e-governance, e-mail, e-commerce, e-tail etc. In the same manner, a new
technology is being developed in US for introduction of e-cheque, which will eventually replace the
conventional paper cheque. India, as harbinger to the introduction of e-cheque, the Negotiable Instruments
Act has already been amended to include; Truncated cheque and E-cheque instruments.

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Real Time Gross Settlement (RTGS)

Real Time Gross Settlement system, introduced in India since March 2004, is a system through which
electronics instructions can be given by banks to transfer funds from their account to the account of
another bank. The RTGS system is maintained and operated by the RBI and provides a means of efficient
and faster funds transfer among banks facilitating their financial operations. As the name suggests, funds
transfer between banks takes place on a 'Real Time' basis. Therefore, money can reach the beneficiary
instantaneously and the beneficiary's bank has the responsibility to credit the beneficiary's account within
two hours.

National Electronic Funds Transfer (NEFT)

The transfer of money from the customer remitting it to the beneficiary account usually takes place on the
same day. Settlement or clearance of funds takes place in batches as specified by the guidelines by the
RBI. Any amount of money can be transferred using NEFT, making it usually the best method for retail
remittances. Customers with Internet banking accounts can use the NEFT facility to transfer funds
nationwide on their own. Funds can also be transferred via NEFT by customers by walking into any bank
branch (which is NEFT-

enabled) and leaving relevant instructions for such transfer - either from their bank accounts or by payment
of cash. Transfer of funds to Nepal using NEFT, is also allowed subject to limits.

Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) is a system whereby anyone who wants to make payment to another
person/company etc. can approach his bank and make cash payment or give instructions/authorization to
transfer funds directly from his own account to the bank account of the receiver/beneficiary. Complete
details such as the receiver’s name, bank account number, account type (savings or current account),
bank name, city, branch name etc. should be furnished to the bank at the time of requesting for such
transfers so that the amount reaches the beneficiaries' account correctly and faster. RBI is the service
provider of EFT.

Electronic Clearing Service (ECS)

Electronic Clearing Service is a retail payment system that can be used to make bulk payments/receipts
of a similar nature especially where each individual payment is of a repetitive nature and of relatively
smaller amount. This facility is meant for companies and government departments to make/receive large
volumes of payments rather than for funds transfers by individuals.

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Automatic Teller Machine (ATM)

Automatic Teller Machine is the most popular devise in India, which enables the customers to withdraw
their money 24 hours a day 7 days a week. It is a device that allows customer who has an ATM card to
perform routine banking transactions without interacting with a human teller. In addition to cash
withdrawal, ATMs can be used for payment of utility bills, funds transfer between accounts, deposit of
cheques and cash into accounts, balance enquiry etc.

Tele-banking

Tele banking is another innovation, which provided the facility of 24-hour banking to the customer.
Tele-banking is based on the voice processing facility available on bank computers. The caller usually a
customer calls the bank anytime and can enquire balance in his account or other transaction history. In
this system, the computers at bank are connected to a telephone link with the help of a modem. Voice
processing facility provided in the software. This software identifies the voice of caller and provides him
suitable reply. Some banks also use telephonic answering machine but this is limited to some brief
functions. This is only telephone answering system and now Tele-banking. Tele banking is becoming
popular since queries at ATM’s are now becoming too long.

Internet Banking

Internet banking enables a customer to do banking transactions through the bank’s website on the Internet.
It is a system of accessing accounts and general information on bank products and services through a
computer while sitting in its office or home. This is also called virtual banking. It is more or less bringing the
bank to your computer. In traditional banking one has to approach the branch in person, to withdraw cash or
deposit a cheque or request a statement

of accounts etc. but internet banking has changed the way of banking. Now everyone can operate all
these type of transactions on his computer through website of bank. All such transactions are encrypted;
using sophisticated multi- layered security architecture, including firewalls and filters. One can be
rest assured that one’s transactions are secure and confidential.

Mobile Banking

Mobile banking facility is an extension of internet banking. With recent developments in handset designs
and mobile software, this is a trend which has already caught focus of majority of the banks. The bank is
in association with the cellular service providers offers this service. For this service, mobile phone should
either be SMS or WAP enabled. These facilities are available even to those customers with only credit card
accounts with the bank.

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Point of Sale Terminal

Point of Sale Terminal is a computer terminal that is linked online to the computerized customer
information files in a bank and magnetically encoded plastic transaction card that identifies the customer to
the computer. During a transaction, the customer's account is debited and the retailer's account is credited
by the computer for the amount of purchase. Tele Banking Tele Banking facilitates the customer to do
entire non-cash related banking on telephone. Under this devise Automatic Voice Recorder is used for
simpler queries and transactions. For complicated queries and transactions, manned phone terminals are
used.

Electronic Data Interchange (EDI)

Electronic Data Interchange is the electronic exchange of business documents like purchase order, invoices,
shipping notices, receiving advices etc. in a standard, computer processed, universally accepted format
between trading partners. EDI can also be used to transmit financial information and payments in
electronic form.

Challenges Faced by Banks, vis-à-vis, IT Implementation

It is becoming increasingly imperative for banks to assess and ascertain the benefits of technology
implementation. The fruits of technology will certainly taste a lot sweeter when the returns can be measured
in absolute terms but it needs precautions and the safety nets. The increasing use of technology in banks has
also brought up 'security' concerns. To avoid any mishaps on this account, banks ought to have in place a well-
documented security policy including network security and internal security. The passing of the Information
Technology Act has come as a boon to the banking sector, and banks should now ensure to abide strictly by
its covenants. An effort should also be made to cover e-business in the country's consumer laws. Some are
investing in it to drive the business growth, while others are having no option but to invest, to stay in business.
The choice of right channel, justification of IT investment on ROI, e-governance, customer relationship
management, security concerns, technological obsolescence, mergers and acquisitions, penetration of IT in
rural areas, and outsourcing of IT operations are the major challenges and issues in the use of IT in banking
operations.

Future Outlook

Everyone today is convinced that the technology is going to hold the key to future of banking. The
achievements in the banking today would not have make possible without ITrevolution. Therefore, the key
point is while changing to the current environment the bank shas to understand properly the trigger for
change and accordingly find out the suitable departure point for the change.

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 7. BANK PROFILE

In olden days Mahad was famous as a business port. In the premises of market there was a huge market. For
the market money lenders used to provide the money on interest based. Due to the huge market business the
moneylenders also earned a lot. Beside this the number of banks were also very less. There were only 1 or 2
banks are working. The villagers did not have any knowledge of transactions of the bank. The villagers realized
that there was a need of organization which would provide money to the people. Due to this need only the
foundation of Mahad urban bank was laid.

This need of the Mahad people was satisfied by Govind C. Bhate as a chief promoter completed his
responsibility and on 3rd January 1931 Mahad urban bank was established. After that following people take
charge of Bank chairman

It is observed that since 1932 to 2005 late Dattatray Narhari Vaidya and Adv. Sudhakar savant have
contributed a lot to the people. Late Adv. Sudhakar savant increased the various bank branches, deposits rate,
loan rate and there was a tremendous change in the bank administration and bank book its independent place
in Raigad district and still it is being the same.

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 8.SERVICES PROVIDED BY BANK

1. Loans
2. Fixed deposits
3. Recuring deposit
4. Demand draft
5. Savings \ current account
6. Debit card
7. Overdrafts
8. Lockers
9. ATM
10. RTGS
11. NEFT
12. Pigmy deposit scheme
13. Customer care
14. Cash credit

1] Loans: -

Under the loan system, credit is given for a definite purpose and for a predetermined period. Normally
those loans are repayable in installments. Funds are required for single non-repetitive transactions and are
withdrawn only once. If the Warren its funds again and wants renewal of an existing loan, a fresh request is
made to the bank. Thus, a borrower is required to negotiate every time he is taking a new loan or renewing
an existing loan. Banker is at liberty to grant or refuse such a request depending upon his own cash resources
and credit policy of Central Bank.

Advantages of loan: -

1. Financial discipline on the borrower.as the time of repayment of the loan its installment is fixed in
advance, this system ensures a great degree of self-discipline on the border as compared to the cash credit
system.

2. Periodic review of loan account. Whenever any loan is granted on its renewal is sanctioned, the banker
and opportunity of automatically removing the loan account. Unsatisfactory loan accounts may be
discontinued at the discretion of the banker.

3. Profitability. The system is comparatively simple. Interest across to the bank on the entire amount lend to
a customer.

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Disadvantage of loan: -

1. Inflexibility. Every time alone is required, it is to be negotiated with the banker. Provided it, borrowers
may borrow in excess of their exact requirement to provide for any contingency.

2. Banks have no control over the use of funds borrowed by the customer. However, bank interest of
hypothecation of asset/vehicle purchase with loan amount.

3. Through the loans are for fixed periods, but in practice they roll over, i.e., they are renewed frequently.

4. Loan documentation is more comprehensive as compared to cash credit system.

TYPES OF LOAN: -

1] PERSONAL LOAN: -

A personal loan is an amount of money you can borrow to use for a variety of purposes. For instance,
you may use a personal loan to consolidate debt, pay for home renovations, or plan a dream wedding. Personal
loans can be offered by banks, credit unions, or online lenders. The money you borrow must be repaid over
time, typically with interest. Some lenders may also charge fees for personal loans.

• Personal loans are loans that can cover a number of personal expenses.
• You can find personal loans through banks, credit unions, and online lenders.
• Personal loans can be secured, meaning you need collateral to borrow money, or unsecured, with no
collateral needed.

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 • Personal loans can vary greatly when it comes to their interest rates, fees, amounts, and repayment
terms.

Understanding a Personal Loan: -

A personal loan allows you to borrow money to pay for personal expenses and then repay those funds over
time. Personal loans are a type of installment debt that allows you to obtain a lump sum of funding. For
example, you might use a personal loan to cover:

• Moving expenses
• Debt consolidation
• Medical bills
• Wedding expenses
• Home renovations or repairs
• Funeral costs
• Vacation costs
• Unexpected expenses
These loans are different from other installment loans—such as student loans, car loans, and
mortgage loans—that are used to fund specific expenses (i.e., education, vehicle purchase, and home
purchase)
A personal loan is also different from a personal line of credit. The latter is not a lump sum amount;
instead, it works like a credit card. You have a credit line that you can spend money against and, as
you do so, your available credit is reduced. You can then free up available credit by making a payment
toward your credit line. With a personal loan, there’s typically a fixed end date by which the loan will
be paid off. A personal line of credit, on the other hand, may remain open and available to you
indefinitely as long as your account remains in good standing with your lender.
Types of Personal Loans: -
Personal loans may be secured or unsecured. A secured personal loan is one that requires some type
of collateral as a condition of borrowing. For instance, you may secure a personal loan with cash
assets, such as a savings account or certificate of deposit (CD), or with a physical asset, such as your
car or boat. If you default on the loan, the lender could keep your collateral to satisfy the debt.

An unsecured personal loan requires no collateral to borrow money. Banks, credit unions, and online
lenders can offer both secured and unsecured personal loans to qualified borrowers. Banks generally
consider the latter to be riskier than the former because there’s no collateral to collect. That can mean
paying a higher interest rate for a personal loan.

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Business loan: -

A Business loan can help you meet your various business expenditures. You can apply for a business loan
to start a new business or if you need growth in your existing business. A business loan can take care of the
financial expenses of your business and keep your business in good health. Our business loan experts have
the knowledge and experience to explain you and guide you to apply for a business loan as per your business
requirement. We provide business loan advice and help apply for a business loan as per the requirement of
the business and for different types of business

Gold Loan: -

Gold loan (also called loan against gold) is a secured loan taken by the borrower from a lender by
pledging their gold articles (within a range of 18-24 carats) as collateral. The loan amount provided is a
certain percentage of the gold, typically up to 80%, based on the current market value and quality of gold.

Benefits of gold loan: -

Gold loan is similar to personal loan in meeting your immediate financial requirements, be it an international
education, marriage expenses, covering medical emergencies or any other personal use.

• Quick Disbursal- Minimum documentation leads to faster processing of gold loan due to its secured
nature.
• Flexibility of Use- Since there is no monitoring of the end use, it gives you the flexibility to use the
loan for any type of expense.
• Secured Loan Type: You are not required to submit any other security/collateral to the lender other
than the pledged gold ornaments.
• Lower Interest Rate: Interest rates on gold loans are on the lower side when compared to personal
loan, since gold serves as collateral.
• Liquidate your idle asset: An idle asset, gold is seldom used for generating money. Hence gold loan
is the perfect solution to raise capital and use the fund when you require money to meet your
financial needs. It is also more secure in the confines of a banks or a financial institution’s locker
than your home.

EDUCATION LOAN: -

Quality education is of prime importance to any individual, and students go the extra mile to achieve
that. However, the cost of education is on the rise lately and opting for an education loan seems to be the
single best solution.An education loan is a loan that students apply to meet the financial requirements to
complete their course. Many banks and NBFCs in India offer education loans at competitive rates to help
educate the upcoming innovators and leaders.

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 Features and Benefits

• The loan amount can go up to Rs.1 crore for international students and up to Rs.50 lakh for domestic
students.
• 100% financing available for certain conditions.
• The financing covers other expenses, such as student exchange travel expenses and laptop.
• Preferential forex rates may be available for international disbursements.
• Loan repayment tenure can go up to 12 years after six months from completing the course.

Parents should be joint borrowers for the education loan.

Commercial Vehicle Loan

Commercial vehicle loans are loans offered to borrowers, usually self-employed individuals, trusts,
partnership firms, organizations etc., for the purchase of vehicles for commercial or business purposes.
These Car loans are availed by those who are involved in the transportation business. A commercial vehicle
loan can be used to purchase buses, trucks, tippers, tankers, light and small commercial vehicles.

Features of Commercial Vehicle Loans: -

You can get a commercial vehicle loan at a low interest if your profile matches with the criteria put forward
by the lenders.

The processing time of a commercial vehicle loan is fast with easy documentation and approval.

Most of the prominent banks in India provide commercial vehicle loans at affordable rate of interest without
any security.

Some of the banks assign a personal relationship manager from starting till procurement of the vehicle.
He/she will do all documentation and address every issue related to the loan.

Once all required documents are submitted, it takes around 7 days for the disbursal of the loan amount.

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Types Of Commercial Vehicle Loans

New commercial vehicle loan

This type of commercial vehicle loan is provided to the customers for the purchase of new commercial
vehicles for business purpose. Banks offer up to 100% funding on the chassis or base frame value of the
vehicle. Some of the banks provide additional funding for the body construction of the vehicles in selective
cases based on the borrower’s profile.

Old commercial vehicle loan

Old or used commercial vehicle loan are those loans which are offered to purchase all makes of pre-owned
or used commercial vehicles. Under this loan, borrowers can expect to get finance against old vehicles which
are up to 15 years old. Most of the banks provide up to 90% funding on the used vehicle’s value or
depreciation grid value.

Commercial vehicle refinancing

Under commercial vehicle refinancing, banks either offer loan on an existing vehicle which is free of loan or
take over an existing commercial vehicle loan and provide additional finance for it based on eligibility.
While some borrowers can reduce the monthly EMIs of their existing loan and free up some cash by
refinancing an existing loan at lower interest rates, some others can get direct finance on their free vehicles
to meet the working capital needs.

Housing Loan

A home/housing loan, also known as a mortgage, is an amount of money borrowed by an individual, usually
from banks and companies that lend money. The borrower has to pay back the loan amount with interest in
Easy Monthly Instalments or EMI's over a period of time that can vary between 10-30 years depending on
the nature of the loan. Buying a house is one of the biggest dreams come true for most people and an
extravagant affair altogether. Imparting life to such a dream requires a lot of effort from the buyers’ end and
the best one can do to accommodate the home in their budget is through a home loan

A home loan can be opted to buy a new house/flat or a plot of land where you construct the house, and even
for renovation, extension, and repairs to an existing house.

Mortgage Loan

A mortgage loan or simply mortgage is a loan used either by purchasers of real property to raise funds to buy
real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property
being mortgaged. Mortgage borrowers can be individuals mortgaging their home or they can be businesses
mortgaging commercial property (for example, their own business premises, residential property let to
29
tenants, or an investment portfolio). The lender will typically be a financial institution, such as a bank, credit
union or building society, depending on the country concerned, and the loan arrangements can be made
either directly or indirectly through intermediaries. Features of mortgage loans such as the size of the loan,
maturity of the loan, interest rate, method of paying off the loan, and other characteristics can vary
considerably. The lender's rights over the secured property take priority over the borrower's other creditors,
which means that if the borrower becomes bankrupt or insolvent, the other creditors will only be repaid the
debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first.

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2] FIXED DEPOSIT: -

Fixed deposits are an investment instrument provided by banks and other financial institutions such as
non-banking financial institutions (NBFCs) and housing finance companies (HFCs). Under this, investors
would deposit a lump sum over a period. In turn, they would get a fixed rate of interest throughout the
investment. The rate of interest provided on FDs is much higher than that of a regular savings bank account.
Once the tenure of the deposit ends, investors can withdraw their investment. However, they have a choice of
reinvesting their money for another term.

Who Offers Fixed Deposits?

All scheduled commercial banks and some NBFCs and HFCs in India offer fixed deposits. However, if
investors are to invest in FDs provided by an NBFC or HFC, then they first need to check the ratings provided
by agencies such as CRISIL. This is to make sure that your money is safe. Private sector banks and other
financial institutions may offer a slightly higher rate of interest than the public sector banks.

31
FEATURES OF FIXED DEPOSIT: -

The following are the key features of fixed deposits

• The investment tenure of FDs ranges from one day to several years, and it varies across banks
• The return on investment is compounded periodically, and it may be monthly, quarterly, or annually
• Senior citizens are provided with slightly higher returns (0.5% higher)
• Partial or full withdrawals are permitted (with penalties)
• Taxpayers can invest in tax-saver FDs to save taxes under Section 80C
• Once the investment matures, investors can reinvest for another term
• Loan against FDs are available
• Investors will accumulate higher returns if they invest for a more extended period

Benefits of Fixed Deposits: -

• Returns are assured as they are not tied with the market
• At times of financial emergencies, one can avail a loan against their FDs
• Investment is safe as banks and other financial institutions are always under the purview of the Reserve
Bank of India (RBI)
• Compounded interest makes your investment grow at a much faster rate
• Premature withdrawals are allowed, so you will always have a corpus to fall back on at times of crisis

32
3] RECURING DEPOSIT: -

Recurring Deposits (RD) provides customers with the flexibility to invest an amount of their choice each
month and save money with ease. Recurring deposit accounts are offered by most of the banks and NBFCs in
India with tenures ranging from 6 months to 10 years. The interest rate usually ranges from 5.00% - 7.85%

FEATURES OF RECURING DEPOSIT

• Recurring Deposit schemes aim to inculcate a regular habit of saving among the public.
• Minimum amount that can be deposited varies from bank to bank. It can be an amount as small as
Rs.10.
• The minimum period of deposit starts at six months and the maximum period of deposit is ten years.
• The rate of interest is equal to that offered for a Fixed Deposit and is hence higher than any other
Savings scheme.
• Premature and midterm withdrawals are not allowed. However, the bank may allow to close the
account before the maturity period, sometimes with a penalty for premature withdrawal.
• RD offers the additional benefit of taking loan against the deposit, i.e., by using the deposit as a
collateral. About 80 to 90% of the deposit value can be given as loan to the account holder.
• The Recurring Deposit can be funded periodically through Standing Instructions which are the
instructions given by the customer to the bank to credit the Recurring Deposit account every month
from his/her Savings or Current account.

Important Factors to Check Before Applying for RD: -

Recurring deposit is an investment product that is made available by banks. The principal amount invested
earns interest at regular intervals and the lump sum is handed over to the depositor at the time of maturity.
Although recurring deposit is a safe investment option and the return on investment is mostly guaranteed, there
are some factors any person should consider before investing money in a recurring deposit account.

Interest Rate Offered by the Recurring Deposit Account: The interest rate offered by banks on different term
periods varies from bank to bank. The interest rate offered by different banks to a recurring deposit account
holder generally ranges from 3.5% to 8.5% p.a. The rates of return vary depending on the tenure of the deposit
selected. For medium-term deposits, the rates are generally the highest. For long-term deposits, the rates are
usually slightly lower as the deposit holder stands to gain a higher amount of interest overall.

Term Period of the Recurring Deposit Account: The term periods are divided into three categories:

Short-Term Tenure: A short-term tenure usually lasts from 6 months to a year.

Medium-Term Tenure: A medium-term tenure usually lasts from more than a year to 5 years.Long-Term
Tenure: A long-term tenure lasts from more than 5 years to 10 years.
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4] DEMAND DRAFT: -

A demand draft is a negotiable instrument similar to a bill of exchange. A bank issues a demand draft to a
client (drawer), directing another bank (drawee) or one of its own branches to pay a certain sum to the specified
party (payee). A demand draft can also be compared to a cheque. However, demand drafts are difficult to
countermand. Demand drafts can only be made payable to a specified party, also known as pay to order. But
cheques can also be made payable to the bearer. Demand drafts are orders of payment by a bank to another
bank, whereas cheques are orders of payment from an account holder to the bank. A Drawer has to visit the
branch of the Bank and fill the DD form and pay the amount either by cash or any other mode, and Bank will
issue DD [demand draft]. A Demand Draft has a validity of three months from the date of issuance of DD.

5] SAVINGS/ CURRENT ACCOUNT: -

• Saving Account: -

A savings account is an interest-bearing deposit account held at a bank or other financial institution.
Though these accounts typically pay a modest interest rate, their safety and reliability make them a great
option for parking cash you want available for short-term needs

❖ Because savings accounts pay interest while keep your funds easily accessible, they’re a good
option for emergency or short-term cash.
❖ In exchange for the ease and liquidity that savings accounts offer, you’ll earn a lower rate than
that paid by more restrictive savings instruments and investments.
❖ The amount you can withdraw from a savings account is generally unlimited.
❖ The interest you earn on a savings account is considered taxable income.

Savings accounts have some limitations on how often you can withdraw funds, but generally offer exceptional
flexibility that’s ideal for building an emergency fund, saving for a short-term goal like buying a car or going
on vacation, or simply sweeping surplus cash you don’t need in your checking account so it can earn more
interest

How Savings Accounts Work

Savings and other deposit accounts are important sources of funds that financial institutions use for loans. For
that reason, you can find savings accounts at virtually every bank or credit union, whether they are traditional
brick and mortar institutions or operate exclusively online. In addition, you can find savings accounts at some
investment and brokerage firms.

Savings account interest rates vary. With the exception of promotions promising a fixed rate until a certain
date, banks and credit unions might change their rates at any time. Typically, the more competitive the rate,

34
the more likely it is to fluctuate. Changes in the federal funds rate can trigger institutions to adjust their deposit
rates. Some institutions offer high-yield savings accounts, which may be worth investigating.

Money can be transferred in or out of your savings account online, at a branch or ATM, by electronic
transfer, or direct deposit. Transfers can usually be arranged by phone, as well.

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Savings Account Advantages

Savings accounts offer you a place to put your money that is separate from your everyday banking needs,
allowing you to stash money for a rainy day or earmark funds to achieve a big savings goal. What’s more, the
bank’s security measures, along with federal protection against bank failures provided by the Federal Deposit
Insurance Corporation (FDIC), will keep your money safer than it would be under your mattress or in your
sock drawer. Beyond keeping your funds safe, savings accounts also earn interest, so it pays to keep any
unneeded funds in a savings account instead of accumulating cash in your checking account, where it will
likely earn little or nothing. At the same time, your access to funds in a savings account will remain extremely
liquid, unlike certificates of deposit, which impose a hefty penalty if you withdraw your funds too soon.

Holding a savings account at the same institution as your primary checking account can offer several
convenience and efficiency benefits. Since transfers between accounts at the same institution are usually
instantaneous, deposits or withdrawals to your savings account from your checking account will take effect
right away. This makes it easy to transfer excess cash from your checking account and have it immediately
earned interest—or transfer money the other way if you need to cover a large checking transaction. Many
institutions allow you to open more than one savings account, which can be handy if you want to keep track
of your savings progress on multiple goals. For instance, you could have one savings account to save for a big
trip while a separate one holds surplus cash from your checking account.

36
Savings Account Disadvantages

The trade-off for a savings account’s easy access and reliable safety is that it won’t pay as much as other
savings instruments. For instance, you can earn a higher return with certificates of deposit or Treasury bills,
or by investing in stocks and bonds if your time horizon is long enough. As a result, savings accounts present
an opportunity cost if used for long-term savings. Also, while the liquidity of a savings account is one of its
key benefits, it can also be a downside, as the ready availability of funds may tempt you to spend what
you’ve saved. In contrast, it is much more difficult to cash in a bond, withdraw funds from a retirement
account, or sell a stock than it is to take money out of your savings account, especially if that account is
linked to your checking account.

Savings accounts are also a poor choice for funds you need to access frequently. Because rules
previously restricted withdrawal transactions to six times per month—whether those were transfers or
outright withdrawals at a branch or ATM—a savings account was not always an appropriate vehicle for
these funds. The lifting of these restrictions has made the funds more accessible.

CURRENT ACCOUNT: -

Current bank accounts are very popular among companies, firms, public enterprises, businessmen who
generally have higher numbers of regular transactions with the bank. The current account includes deposits,
withdrawals, and contra transactions. Such accounts are also called the Demand Deposit Account.

37
Advantages of having a Current Account

❖ Current accounts allow handling of large volumes of receipts and/or payments systematically
❖ Under these accounts, limitless withdrawals are allowed in line with the levied cash transaction fees.
❖ There are no restrictions applied on the deposits made into the current accounts opened at the bank’s
home branch. Additionally, account holders can also deposit cash at other branches upon paying small
fees as applicable.
❖ Cheques, pay-orders, or demand-drafts can be issued via a current account for making direct payments
to creditors.
❖ Overdraft facilities are also available for current account holders.
❖ The presence of small interest earnings on account balance makes a current account all the more
attractive for its users.
❖ Businesses are further advantaged with various other benefits in the form of free inward remittances,
deposit and withdrawals at any location, multi-location transfer etc.
❖ The businessmen can withdraw from their current accounts without any limit, subject to banking cash
transaction tax, if any levied by the government.
❖ Assists creditors of the account holder who can have access to information on the account holder’s
credit-worthiness through inter-bank connection.
❖ It facilitates the industrial progress of the country. Without its help, businessmen would face difficulties
in running their businesses.
❖ Provides with Internet-banking and mobile-banking to enable businessmen carry out important
business transactions promptly and with ease.
❖ It also provides various other advantages (benefits) such as:
❖ Deposit and withdrawal of money (cash) at any location.

Multi-location funds transfer.

Disadvantages of having a Current Account

❖ There is an opportunity cost of losing on the interest rates due to low or zero interest on money in
current account.
❖ There is an operational burden attached since most package accounts offer services at additional costs.
❖ The involved paperwork and fine print serve to be lengthy and confusing.
❖ Huge fees due to corporate business transactions.
❖ There is a limit on the amount of funds that can be withdrawn in a day

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6] DEBIT CARD: -

A debit card (also known as a bank card, plastic card or check card) is a payment card that can be used in place
of cash to make purchases. It is similar to a credit card, but unlike a credit card, the money for the purchase
must be in the cardholder's bank account at the time of a purchase and is immediately transferred directly from
that account to the merchant's account to pay for the purchase.

Some debit cards carry a stored value with which a payment is made (prepaid card), but most relay a message
to the cardholder's bank to withdraw funds from the cardholder's designated bank account. In some cases, the
payment card number is assigned exclusively for use on the Internet and there is no physical card. This is
referred to as a virtual card.

Debit cards usually also allow an instant withdrawal of cash, acting as an ATM card for this purpose.
Merchants may also offer cashback facilities to customers, so that a customer can withdraw cash along with
their purchase. There are usually daily limits on the amount of cash that can be withdrawn. Most debit cards
are plastic, but there are cards made of metal, and rarely wood.

ADVANTAGES: -

Advantages of prepaid debit cards include being safer than carrying cash, worldwide functionality due to Visa
and MasterCard merchant acceptance, not having to worry about paying a credit card bill or going into debt,
the opportunity for anyone over the age of 18 to apply and be accepted without checks on creditworthiness,
and the option to deposit paychecks and government benefits directly onto the card for free.[5] A newer
advantage is use of EMV[clarification needed] technology and even contactless functionality, which had
previously been limited to bank debit cards and credit cards.

7] OVERDRAFT: -

An overdraft occurs when there isn't enough money in an account to cover a transaction or withdrawal, but
the bank allows the transaction anyway. Essentially, it's an extension of credit from the financial institution
that is granted when an account reaches zero. The overdraft allows the account holder to continue withdrawing
money even when the account has no funds in it or has insufficient funds to cover the amount of the
withdrawal. Basically, an overdraft means that the bank allows customers to borrow a set amount of money.
There is interest on the loan, and there is typically a fee per overdraft.

• An overdraft occurs when an account lacks the funds to cover a withdrawal, but the bank allows the
transaction to go through anyway.
• The overdraft allows the customer to continue paying bills even when there is insufficient money.
• An overdraft is like any other loan: The account holder pays interest on it and will typically be charged
a one-time insufficient funds fee.

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 • Overdraft protection is provided by some banks to customers when their account reaches zero; it avoids
insufficient funds charges, but often includes interest and other fees.

8] LOCKERS: -

Most bank branches offer the facility of safe deposit lockers to keep valuables such as Jeweler or important
documents securely. An ideal place to hire a locker would be the nearest bank branch where one has an
account. Size of the locker can be chosen according to need ad the rent

Opening

Usually there is a high demand for lockers and one needs to apply to the bank for the same. If a locker is
available then the bank and the customer enter into a locker rental agreement which spells out the terms and
conditions, liabilities and responsibilities of the bank and the customer.

Maintenance

While entering into a locker agreement, a locker rental is collected depending upon the bank, branch and size
or location of the locker. The customer should keep sufficient balance in the bank account which can take care
of annual rental of the locker through a direct debit instruction. Typically, banks ask for collateral in the form
of deposits that cover a rent of up to three years.

Holding and nomination

A locker can be held by more than one person. On the death of one of the holders, the nominee and other
holders get access to the contents of the locker on submission of necessary documents. It is mandatory to
register nomination for the locker. If there is no nominee, the legal heir typically gets access to the locker.

Closing

If one wishes to close the locker, he/she can apply to surrender it. The customer needs to empty the locker and
return the key to the bank. The agreement stands terminated and the locker rental collected at the beginning of
the year is refunded to the customer.

Points to note

• Each locker has two keys out of which one is with the customer. If the customer loses the key, a
penalty is charged for getting the locker opened and replacing the key.
• One can take a jeweler insurance plan which covers items kept in safe deposit lockers of specified
banks.

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9] ATM

An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete
basic transactions without the aid of a branch representative or teller. Anyone with a credit card or debit
card can access cash at most ATMs.

ATMs are convenient, allowing consumers to perform quick self-service transactions such as deposits, cash
withdrawals, bill payments, and transfers between accounts. Fees are commonly charged for cash
withdrawals by the bank where the account is located, by the operator of the ATM, or by both. Some or all
of these fees can be avoided by using an ATM operated directly by the bank that holds the account.

ATMs are known in different parts of the world as automated bank machines (ABM) or cash machines.

• Automated teller machines (ATMs) are electronic banking outlets that allow people to complete
transactions without going into a branch of their bank.
• Some ATMs are simple cash dispensers while others allow a variety of transactions such as check
deposits, balance transfers, and bill payments.
• The first ATMs appeared in the mid- to late-1960s and have grown in number to over 2 million
worldwide.
• Today's ATMs are technological marvels, many capable of accepting deposits as well as several
other banking services.
• To keep ATM fees down, use an ATM branded by your own bank as often as possible.

Types of ATMs
There are two primary types of ATMs. Basic units only allow customers to withdraw cash and receive
updated account balances. The more complex machines accept deposits, facilitate line-of-credit payments
and transfers, and access account information.

To access the advanced features of the complex units, a user often must be an account holder at the bank
that operates the machine.

Analysts anticipate ATMs will become even more popular and forecast an increase in the number of ATM
withdrawals. ATMs of the future are likely to be full-service terminals instead of or in addition to
traditional bank tellers.

ATM Ownership
In many cases, banks and credit unions own ATMs. However, individuals and businesses may also buy or
lease ATMs on their own or through an ATM franchise. When individuals or small businesses, such as
restaurants or gas stations own ATMs, the profit model is based on charging fees to the machine's users.

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Banks also own ATMs with this intent. They use the convenience of an ATM to attract clients. ATMs also
take some of the customer service burdens from bank tellers, saving banks money in payroll costs.

Uses

Paying routine bills, fees, and taxes (utilities, phone bills, social security, legal fees, income taxes, etc.)

• Printing or ordering bank statements

• Updating passbooks
• Cash advances
• Cheque Processing Module
• Paying (in full or partially) the credit balance on a card linked to a specific current account.
• Transferring money between linked accounts (such as transferring between accounts)
• Deposit currency recognition, acceptance, and recycling[107][108]

In some countries, especially those which benefit from a fully integrated cross-bank network
(e.g.: Multibank in Portugal), ATMs include many functions that are not directly related to the management
of one's own bank account, such as:

• Loading monetary value into stored-value cards

• Adding pre-paid cell phone / mobile phone credit.
• Purchasing
o Concert tickets
o Gold
o Lottery tickets
o Movie tickets
o Postage stamps.
o Train tickets
o Shopping mall gift certificates.
• Donating to charities

Increasingly, banks are seeking to use the ATM as a sales device to deliver pre-approved loans and targeted
advertising using products such as ITM (the Intelligent Teller Machine) from Patra Relate from NCR. ATMs
can also act as an advertising channel for other companies

• In urban bank rupee card is used.

• For savings a/c minimum balance in a/c must be ₹ 1000
• If the balance in the savings a/c is less Then ₹1000 then the a/c holder can’t take out money from the
ATM machine.
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Types of ATM cards

Each financial service institution like Visa or Mastercard provides several types of cards like Visa Classic,
Visa Platinum, Standard Mastercard or Gold Mastercard, etc. Further, these institutions partner with banks
and provide many kinds of customized debit ATM card options which are coupled with several benefits and
rewards that can be offered to customers. Some of the examples are Easy Shop Platinum Debit Card-VISA
by HDFC, VISA Classic Debit Card by Axis, Repay Platinum debit Card by Axis, etc.Based on financial
service providers, there are mainly 4 types of ATM/Debit cards:

1. VISA ATM Cards

VISA Cards by banks is actually in partnership with Visa Inc., an American finance MNC. It is one of the
most popular and widely used cards; hence, is accepted globally. VISA provides several types of ATM cards
like Classic, Gold, Platinum, etc. in association with the banks. These cards come with an Overdraft facility
and use the VISA payment gateway which is safe and secure.VISA also provides the VISA Electron Card that
does not have an overdraft facility. It is usually given to younger customers or those with poor credit scores. It
is also not accepted in some countries. There is no charge on cash withdrawal with VISA Electron Cards.

2. Mastercard ATM Cards

Mastercard is also an American service provider and is globally accepted like VISA. It is a highly
safe payment gateway with 24×7 customer service. It is a global bank card payment transaction
processor that partners with banks to issue debit cards. Its portfolio of brands and products includes
Maestro, Cirrus, and MasterCard Pay Pass.

3. Rupay ATM Cards

Rupay is an Indian multinational financial service provider and payment service system. It is the
first of its kind global card payment network from India. It was RBI’s vision and conceived as well
as launched by the National Payments Corporation of India in 2012. Since then, repay debit cards
have been widely accepted at ATMs, shops, and online payments.

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4. Contactless Cards
Contactless ATM Cards use RFID (Radio Frequency Identification) technology that lets the card communicate
with the card reader when held closely. The card reader reads and authenticates the information exactly like it
does when other cards are inserted into card reader space. Some customers feel it’s a better and faster cash
transaction experience. Banks like ICICI and SBI offer Contactless cards. The above-mentioned ATM cards
are broadly categorized based on service providers. Different banks partner and provide customized cards that
bear the logos of both the service provider and the bank. For instance, Yes Prosperity Rupa Platinum ATM
Card and IDFC First Bank Rupa Platinum ATM Card are both platinum card services by Rupa. But both the
banks offer their rewards and benefits. Apart from the above, there are also other service providers like Diner
Club (Discover) or American Express but they provide only credit cards as of now.

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10] RTGS

Real-Time Gross Settlement (RTGS) is a fund transfer method via which money is sent immediately
without any delays. RTGS is typically meant for larger value transactions and the minimum amount that can
be sent via this mode is Rs.2 lakh.

You can use the net banking or mobile banking facility to transfer money via RTGS. You need the bank
details of the individual to transfer money via this mode. Transfers can be scheduled in advance as well.

The following information is required for an RTGS transaction:

• The amount that needs to be transferred.

• Name of the payee/beneficiary as in the bank account,
• IFSC code of the payee/beneficiary.
• Account number of the payee/beneficiary.
• Name of beneficiary bank and bank branch.

The step-by-step procedure to transfer funds via RTGS is mentioned below:

Step 1: Log in to your respective bank’s internet banking account by entering your username and password.

Step 2: Go to the home page and click on the Funds Transfer option.

Step 3: Proceed to choose RTGS, key in beneficiary/payee details such as account number, IFSC code, etc.

Step 4: Review all details and then submit. The funds will be credited immediately to the payee’s account.

Features and Benefits of RTGS Transactions

• Realtime online fund transfer

• Used for high value transactions
• Safe and secure
• Reliable and backed by the RBI
• Immediate clearing

• Funds credited on a one-on-one basis

• Transactions executed on an individual and gross basis

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11] NEFT
National Electronic Funds Transfer (NEFT) is an electronic funds transfer system maintained by the
Reserve Bank of India (RBI). Started in November 2005, the setup was established and maintained by
Institute for Development and Research in Banking Technology.[1] NEFT enables bank customers in India
to transfer funds between any two NEFT-enabled bank accounts on a one-to-one basis. It is done via
electronic messages.
Unlike real-time gross settlement, fund transfers through the NEFT system do not occur in real-time basis.
Previously, NEFT system settled fund transfers in hourly batches with 23 settlements occurring between
00:30 hrs. to 00:00 hrs from 16 December 2019, there would be 48 half-hourly batches occurring between
00.30 am to 00:00 am every day regardless of a holiday or otherwise
As of 30 November 2019, NEFT facilities were available at 1,48,477 branches/offices of 216 banks across
the country and online through the website of NEFT-enabled banks. NEFT has gained popularity due to the
ease and efficiency with which the transactions can be concluded. There is no limit – either minimum or
maximum – on the amount of funds that can be transferred using NEFT.

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PROCESS: -

• The customer fills up an application form providing details of the beneficiary (like name, bank,
branch name, IFSC, account type and account number) and the amount to be remitted. The
remitter authorizes his/her bank branch to debit his account and remit the specified amount to the
beneficiary. This facility is also available through online banking, and some banks also offer the
NEFT facility through ATMs.
• The originating bank branch prepares a message and sends the message to its pooling centre (also
called the NEFT Service Centre).
• The pooling centre forwards the message to the NEFT Clearing Centre (operated by National
Clearing Cell, Reserve Bank of India, Mumbai) to be included for the next available batch.
• The Clearing Centre sorts the funds transfer transactions destination bank-wise and prepares
accounting entries to receive funds from the originating banks (debit) and give the funds to the
destination banks (credit). Thereafter, bank-wise remittance messages are forwarded to the
destination banks through their pooling centre (NEFT Service Centre).
• The destination banks receive the inward remittance messages from the Clearing Centre and pass
on the credit to the beneficiary customers’ accounts

12] PIGMY DEPOSIT SCHEME

Daily Deposit Scheme is a monetary deposit scheme introduced to help daily wage earners, small
traders, to inculcate saving habits and also as a way of funding their bigger capital requirements. In this
scheme money can be deposited into an account on daily basis. The amount may be as small as Rupees 20/-
. The unique characteristic of this scheme is that an agent from the bank collects money to be deposited, on
daily basis, from doorsteps of account holder. It has provided many employment opportunities as agents.

13] CUSTOMER CARE

In India, there are hundreds of banks that provide various banking services to millions of customers.
Both public and private sector banks provide banking, investing, savings, money transfer, payments, loans,
and a multitude of other financial services. Customers' experiences with their banks are what gives one
bank a competitive edge over another. In banking, one of the most effective means to keep consumers
coming back is to provide excellent customer service. It entails thoroughly and promptly responding to
customer queries and complaints, as well as dealing with customers via personal meetings, telephone, mail,
and email

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Different Types of Customer Support Offered by Banks

One of the most common ways to reach a bank’s customer support is via Phone. Most banks have a toll-
free customer care number that allows their customers to get in touch with their bank from anywhere
anytime. Some of the most common ways to reach a bank’s customer support department are

• Toll-free telephone numbers for general queries and concerns

• Toll-free telephone numbers for debit or credit card hot listing or blocking
• City-wise call Centre support
• Customer support via email
• Live chat option online through Net banking as well as Mobile Banking
• Web support via forms on Net banking
• SMS support for account-related queries
• Branch wise customer support officers
• Grievance Redressal desks

14] CASH CREDIT

Cash Credit (CC) is a source of short-term finance for businesses and companies. Cash credits are
also called working capital loans as they fund the instant cash requirements of the organizations, or to
purchase current assets. Borrowing limits on the amount of cash available for credit for the company
varies between commercial banks. The interest charged is on the daily closing balance instead of the
upper borrowing limit, so the repayment is only on the amount spent from the available limit. Because it
is taken for a short term, the repayment of the amount taken on credit is also set at 12 or less months.
Cash credit is a loan and banks demand collateral to approve it. Cash credits are similar to overdraft
facilities, though there are significant differences between them. Cash credit is available for a shorter
period of time and at a significantly less interest rate than overdrafts. Cash credit is used by financial
institutions and businesses and with a collateral, which thus becomes a loan, overdraft is approved on
the basis of the relationship that the bank and customer share.

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Advantages of cash credit system

1. Flexibility. The borrowers need not keep their surplus funds idle with themselves, they can recycle the funds
quite efficiently and can Maximize interest charges by depositing all cash accruals in the bank account and
those keeping the withdrawals at the minimum level. This is teaming those insurers laser cost of funds to the
borrowers and better turnover a funds for the banks.

2. Operative convenience. Banks have to maintain one account for all the transaction of a customer. The
repetitive documentation is avoided.

Disadvantages of cash credit system

1. Fixation of credit limits. Cash credit limit are prescribed once in the year. Hence it gives rise to the practice
of fixing large limits than is required for most part of the year. The borrowers’ mis utilized the unutilized gap
in times of credit restraint.

2. Banks in ability to verify the end use of funds. Under this system the stress is on security aspect. Hence
there is no consciousness effect on the parts of banks to verify the end use of funds. Funds are diverted,
without Banker’s knowledge to unapproved purposes.

3. Lack of proper management of funds. Under this system the level of advances in a bank is determined not
by how much the banker can lead at a particular time but by the Borrowers decision to borrow at that time.
The system, therefore, does not encourage proper management of funds by banks.

These weaknesses of the cash credit system were Highlighted by a number of committee and the chore
committee.

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 9. CONCLUSION

Banks play very important roles in the economic development of nations as they, toa large extent, wield
control over the supply of money in circulation and are the main stimuli of economic progress. Economic
development is a dynamic and continuous process which is highly dependent upon the mobilization of
resources, investment, and the operational efficiency of the various segments of the economy. The
performance of bank institution and other financial institution need to be evaluated because it defined as the
reflection of the way in which the resources of a bank are used in a form which enables it
to achieve its objectives. As the banking sector is considered a vital segment of a modern economy, its
efficiency is vital importance. In order to ensure a healthy financial system and an efficient economy, banks
and other financial institution must be carefully evaluated and analyzed. While banks and other financial
institution help business organizations by rendering a wide range of products and services, the products and
services are more or less identical from one bank to another, and there is little scope for differentiating between
them. Therefore, it is necessary to measure the banks’ individual performance to determine their contribution
to business development. In Malaysia, the banking sector includes various private and government
banks and some private and government banks have their own branch networks throughout the country. As a
consequence of economic reforms and mobilization, different financial institutions have emerged in the
market. This has not only created an increasingly dynamic and competitive banking environment, which calls
for enhanced evaluation and analysis, but overall, has encouraged greater efficiency in banking services.
Therefore, a strong banking sector including other financial institution is vital for growth, creating jobs,
generating wealth, eradicating poverty, entrepreneurial activity and increasing gross Domestic Product
(GDP) growth.

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 10.BIBLOGRAPHY

1} BOOKS: -

P.N. VARSHNEY “Banking law & practice”. SBPD publishing house, Agar, Indian banking service ,
Money banking & Economic Reform S.K. Sagade

2} Webliography: -

WWW.asmahad.com

3} Search engine: -

www.google.com

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