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Financial Literacy
Participant Handbook

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Table of Contents
General Instructions for Trainees 5

Chapter 1: Icebreaking, Pre-test and Expectation Setting 3

1.1 Icebreaker 3

1.2 Pre-Test 4

1.3 Setting Expectations 5

Chapter 2: Saving & Spending 7

2.1 Income, expenditure and budgeting 7

2.2 Savings: Different options in the market: Why, How and Where to save 18

Exercise (C2) 28

Chapter 3: Basic Banking Practices 29

3.1 Banking Services; Deposit Accounts; KYC Importance; Bank Transactions; ATM Types; About
PMJDY 29

3.2 KYC Importance; Bank Transactions; ATM Types; About PMJDY 39

3.3 Cashless Banking: POS Machine; BHIM; PayTM; UPI; USSD and e-RUPI 47

3.4 Loan and Repayment Method; CIBIL & CRA 52

Exercise (C3) 64

Chapter 4: Insurance and Social Security Schemes 65

4.1 Insurance: Types of insurance, Managing risks & claim 65

4.2 Social Security Schemes: PMJJBY; PMSBY; APY 72

Exercise (C4) 82

Chapter 5: Schemes supporting Entrepreneurship and Basic Accounting 83

5.1 Stand-up India; PMMY; PMEGP; PMRY; PM SVANidhi; MLUPY 83

5.2 Fixed and Variable Cost; Break-even Point; Costing & Pricing; Bookkeeping and
Recordkeeping 97

Exercise (C5) 112

Chapter 6: Evaluation & Assessment 113

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General Instructions for Trainees

Dear Trainee,
Welcome ☺
You would gain demand-driven theory skills in the chosen trade aligned with industry requirements
and knowledge of basic workplace skills. This would indirectly enhance prospects for an optimistic
career. For gaining highest advantage of the trainings for growth, the following is compulsory:
In Case of Physical Training:
i. Regular attendance to the classes and practical
ii. Energetic participation in classes and tasks/projects
iii. Following the rules and regulations and maintaining the discipline
iv. Always wear the I-card
v. Please follow healthy practices
vi. Kindly switch off fans and lights when you leave the classroom or lab
vii. Please handle the lab equipment carefully, if any
viii. Phones are not permitted in the premises.
ix. Preparations need to be made for the sessions as suggested by Trainer and as
mentioned in the handbook.
x. Kindly submit the assignments, reports and records on time.
In Case of Online Training:
i. Login 10 minutes prior to the start of the web-based seminar.
ii. Do not login with your cell phone names or token names or as Guest. Please login with
your official names and location only. For example: Anshuman Sinha, Dehradun.
iii. During the webinar, it is mandatory to mute your microphones. Microphones should be
unmuted only when you have to ask questions.
iv. If you are logged in from mobile devices, adjust the mobile devices on a proper stand.
Do not move with a mobile device when the webinar is on.
v. Ensure the area where you are sitting is properly lighted. Light should fall on your face
and should not be coming from your back.
vi. The camera of laptop or mobile device should be pointed towards your face and upper
Ensure you attend the webinar from enclosed space.
vii. People attending webinars from public places will not be allowed to attend the webinar.
viii. Ensure you are in a silent zone and there is no external disturbance or movement during
the webinar. (Vehicular or People)
ix. Avoid speaking to external people when the webinar is on. Only in an emergency can
you speak after ensuring the microphone is muted and the video is turned off.
x. People surrounding you should not peep in the camera when the webinar is on.
xi. Sit in good posture. You should not sit in a casual manner.
xii. Be properly dressed to suit the occasion

Kindly contact the Trainer / Center Head for any query / feedback related to the training program or
center related matter.

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Chapter 1: Icebreaking, Pre-test and Expectation Setting

Unit Objectives
At the end of this unit, you will be able to:

● Pre-test to establish a baseline of knowledge

● Accept your own limitations before attempting to manage others' expectations

1.1 Icebreaker
Guess who

This ice breaker works well with teams that know each other well or teams working together.

Directions:

1. Pass around blank 3” X 5” cards to each of

your participants
2. Ask each person to write down one personal
thing about them that no one else knows
3. Collect all cards and mix them up well
4. Distribute the cards once more making sure
no one gets the card they wrote
5. Ask each participant to read out the card
they have been handed and ask the whole
group to guess who the writer of the card is.

OR

Two Truths and a Lie

The main instructions of the game are that each member of

the group introduces themselves by stating two truths and
one lie about themselves. The statements don't have to be
intimate, life-revealing things—just simple hobbies, interests,
or past experiences that make each person unique. The lie
can be outrageous and wacky, or it can sound like a truth to
make it harder for the other participants.

One at a time, each person shares their statements. The group

has to guess which statements are true and which statement is the lie. You can keep score to see who
correctly guesses the most lies, or just play for fun to get to know one another—it's up to your group.

Sample Statements: If you're getting ready to play Two Truths and a Lie, here are a few sample
statements to give you inspiration:

● I love horror movies.

● I have never been ice skating.

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● I am afraid of birds.
● I am color blind.
● I home-schooled my kids.
● I love eating tomatoes and mushrooms.
● I studied three languages but can't speak any of them.
● I can run five miles in under 45 minutes.
● I have autographs from Salman and Katrina.
● I can play the guitar.

1.2 Pre-Test
A pretest is a necessary trainer diagnostic tool for measuring
the learning of trainees. The pretest can become an
introduction to what students are going to learn, rather than a
final judgment on what they did not.

1. We should keep our savings with banks because:

a. It is safe
b. Earns interest
c. Can be withdrawn anytime
d. All of above

2. ATM password to be shared only with:

a. Spouse
b. Obedient son
c. Obedient daughter
d. None of above

3. KYC means:
a. Know your customer
b. Know your character
c. Both of above
d. None of above

4. Loans from money lenders are:

a. With High rate of interest
b. No proper accounting
c. No transparency
d. All of above

5. Life insurance means:

a. Insurance of human
b. Insurance of life of human and Cattle
c. Insurance of Life of Machines
d. All of above

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6. General Insurance relates to insurance against:

a. Fire
b. Theft
c. Burglary
d. All of above

7. Bank provides loans for:

a. Home
b. Car
c. Education
d. All of above

1.3 Setting Expectations

The task of putting yourself, your training participants, and
(sometimes) training event organizers on the same page
early on before an event can be a difficult one - this
resource contains some helpful approaches for facilitating
those discussions.

The objectives of Financial Literacy Training Program are to enable participants to:
1) An understanding of the basic financial concepts, early methods of a transaction and the
evolution of trade
2) The origin of banking, the transition from coins to paper money, types of bank and major
operations and services carried out by banks
3) Role and importance of the Reserve Bank of India (RBI) and the Government of India (GoI)
4) Information on different types of bank cards and their services
5) About the PoS, mPoS and ATM machines
6) Role of UIDAI and the importance of Aadhaar, and Aadhaar Enabled Payment System (AePS)
7) Awareness on Digital Payments including internet banking, types of internet banking, mobile
banking and mobile wallets

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Notes
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Chapter 2: Saving & Spending

Unit Objectives
At the end of this unit, you will be able to understand:

1. Income, expenditure and budgeting: Managing Income & Expenditure of the household
and setting Priorities
2. Savings: Different institutional/non-institutional saving options in the market, Debt
Management etc. Why, How and Where to save

2.1 Income, expenditure and budgeting

Food, shelter and clothing are basic needs of a human being. How can we fulfill these basic needs?
We have to buy food, clothes and shelter (house). To buy anything, we need money. Where can we
get this money?

Your parents work to earn money to run the house and try to fulfill the needs of all the family
members. Can your father or mother earn extra money through other sources or can you and your
sibling contribute towards the family income? Yes, you can by helping in the household chores like
cleaning, mopping, washing dishes or clothes. You can stitch clothes at home or take tuition or repair
household gadgets yourself or do typing for others. With this extra money earned or saved members
can meet additional needs of the family.

If money is managed carefully, we can achieve our goals as well as save some money.

Setting priorities:
Needs and Wants It is very important to know the difference between your needs and your wants.
This will help you in setting your priorities so that you know where to spend your money.
● Need: A necessity, something that is required, something that is essential for life
● Want: A desire, something that is wished for, something that is non-essential
Using these definitions, "a roof over my head" is a need. So are clothing, food and medications.
"Watching movies in the theater" is a want, and so are buying expensive saree, jewelry, etc.

Income and Its Sources

Income is the money received by a person
(individuals or business) periodically on a daily,
weekly, monthly, or yearly basis. Income
includes monetary as well as non-monetary
values of allowances and perquisites. All
income is taxable under income tax unless
expressly exempted.

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Whatever is earned in the form of money which comes into the family is called its income. This
income may come from various sources.

According to Section 2(24) of Income tax Act, 1961 Income includes

a) Salary
b) Profits and Gains from business and profession
c) Dividends
d) Voluntary contributions made by trusts, charitable institutions created wholly or partly for
charitable or religious purposes
e) Perquisites
f) Special or other allowances
g) Any sum paid by the company to the assessee in the form of interest
h) Capital gains
i) Income from other sources

The basic features of Income are:

i. Income can be received at a periodical basis whether daily, weekly, monthly or yearly
ii. Income can be taxed at receipt or accrual basis
iii. Income tax law does not distinguish between legal or illegal income
iv. Income can be received on temporary or permanent basis
v. Income received when in lump sum or in installment basis will be held liable to tax
vi. Under Income Tax Act, Income includes revenue or capital gains and even includes losses
vii. In case of individuals or HUF, gifts received above Rs. 50000 during the financial year will be
considered as income.

Sources of Income: Income can be salary from a job, part time classes, rent from a house or shop,
interest received from bank or sale of shares and other investments. It may also be earning from the
use of your skills or profit from your household produce etc.

When you use your skills like stitching clothes for family members or growing vegetables at home for
your consumption or knitting sweaters for family members, you do not get any money in hand but at
the same time you save money which you would have given to the tailor for stitching or for buying a
sweater or vegetables etc. Such savings add to your income.

Family income is the income from all sources like salary of family members, rents, and interest
received from banks and savings from using the skills of family members.

Money can also be saved by using free facilities like medical facilities, free education for children or
rent free accommodation.

A person may have various sources of income that can be computed under different heads of
Income. The sources of Income can be categorized under 5 heads: –
● Income from salary: Income from salary is the remuneration which is received by an
individual who is rendering services under any contracts which is taken by him. The contract
should be under employment.

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● Income from House Property: A house property can be anything which is appurtenant to the
land and it can be your house, your office, or can be a shop and also can be a building. The
income tax does not distinguish between any of your commercial places or your house
where you stay. All the properties are taxed under this head. An owner is a legal owner for
the purpose of the income tax, owner is someone who can make use of every right of the
owner and the right should not be used on someone’s behalf.
● Income from Profits and gains of business and professions: This income is an income which
is shown by the taxpayer after taking into consideration the amount shown under the profit
and loss account. This income involves both of the amount even if it is loss which is in
negative or profit which is in positive. So basically, the term ‘profit and gains’ means income
which is in plus and ‘loss’ means income which is in minus income. Under this head all the
incomes are taxable whether it is legal or illegal. The income which is earned by the
businessman in the previous year shall be taxable. Income tax return for business and
profession shall be filed on or before 31st July of an assessment year.
● Income from Capital Gains: Any profit or gain which is earned by transferring the capital
assets which was held for investment will be taxable under the head of ‘Income from Capital
Gain’. The gain can be earned from any of the Short-Term Capital Asset and Long-Term
Capital Asset. Only when the type of asset transferred is Capital Asset then only you can earn
Capital Gain. In other words, if the asset which is being transferred is not a capital asset then
it will not fall under Capital Gain. Some examples can be the sale of a house/flat, or selling of
the shares etc.
● Income from Other Sources: Incomes which do not fall under any of the other heads will fall
under the head of ‘Income from Other Sources’. Some of the examples are like Gift, Interest
on Savings or FD, Dividends, etc.

Expenditure
Whatever money we spend from the income for buying various things to fulfill our needs is called
expenditure. Let us make a list of all the items and services on which your family spends income.
Your list may include several items and services given in the list below.
● Food
● Housing
● Clothing
● Education
● Transport
● Medical expenses
● Entertainment
● Others

Income brings money into a family while expenditure takes money out so that it is not available for
anything else.

Savings
A part of the income which comes into a family must also be kept aside for future use. This money
which is set aside is called ‘saving’ and may be used at any time in future for any purpose like family

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needs or emergencies, children’s marriage or higher education, old age security, health emergencies
or to buy luxury goods etc.

Saving is the money set aside by the family for use in times of need.

Why Save?
Without savings, when you want to purchase something, you have to borrow money. Borrowing is
expensive, because not only do you have to pay it back; you also have to pay interest, often at a high
monthly rate. Saving lets you avoid the interest you have to pay while borrowing money.

Need for Managing Income

To ensure that some money is saved, the expenditure must be less than the income. In order to
manage within your income, you need to plan the expenditure. This is known as ‘managing income’
and means spending wisely so that all your needs are met. For this, you will have to make a
‘spending plan’.

A spending plan is a planned approach to spend money. It is based on the total income of a family. It
helps the family to live within their income and also save money for future needs and emergencies.

What is a Spending Plan or a Budget?

It is actually a list of requirements of all the family members, with the money allocated for each item
to fulfill these needs. To be able to do this you must also know the income of a family.

A family budget: why it’s a good idea

A family budget is essential to managing your
money. That’s because a family budget helps you:
● spend your money wisely on the things
you must have – these are your needs
● save money for the things you like but
can live without – these are your wants
● set aside money for unforeseen expenses
– for example, if your car breaks down
and needs repairs
● stop accidental overspending.

Working out how much money you need for everyday essentials like food, housing, utilities like gas,
electricity, phone and water, transport and medical services can help you make sure you have
enough for unexpected expenses and emergencies.

The key to budgeting is sticking to a basic rule – spend less than you earn.

How to make a Spending Plan?

1. Use the following steps to make your spending plan:
2. Keep in mind all the income and facilities available to you for the period for which you are
making the spending plan.

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3. List all the requirements (commodities and services) needed by the family members for that
period.
4. Prioritize these needs.
5. Allocate funds keeping in mind the total income. This will help in effective utilization of
money and other resources.
6. Balance the spending plan. This will also help to save some money.

Second step is listing all the requirements (main category). All families have their own spending plan
according to their needs.

The items of expenditure in your family may be as follows:

Main Category Sub-category Allocation In Rupees

Food ● Fresh foods
● Processed foods

House ● Rent
● Repairing and maintenance

Clothes ● Purchase of garments / fabric

● Repairs and stitching
● Dry cleaning and washing

Education ● Books
● Fees
● Stationary
● Occupational expenses

Household expenses ● Fuel

● Household supplies
● Paid services (servant)

Transport ● Personal (automobile)

● Public

Public utilities ● Electricity

● Telephone Water
● Postage

Home furnishings --
Medical expenses ● Adults
● Children

Tax ● Income
● Property or home

Entertainment ● Adults
● Children

Personal allowances of --
family members
Emergencies --

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Savings ● Saving deposit

● Insurances
● Investments

One of the hardest things about making a budget and managing money can be keeping track of what
you spend.

Spending can be regular (fixed expenses) or irregular or once-off (variable expenses).

Here are some of the fixed expenses you might want to include in your family’s budget:
● mortgage repayments or rent
● utilities – gas, electricity, water, phone and internet
● council fees and land taxes
● school or tertiary study fees
● health, car and household insurance
● public transport costs
● credit card and personal loan repayments.

Here are some of the variable expenses you might want to include in your family’s budget:
● food
● home maintenance and household goods
● school uniforms, textbooks and stationery
● medical and dental fees
● car repairs and petrol
● personal items like clothing and haircuts
● registration fees and equipment – for example, for sports, music or dance programs
● holidays
● entertainment
● gifts – for example, for birthdays or weddings
● other things like special treats for you and your family.

If your income allows, deliberately overestimating the money you need for bills might help you find
extra spending money.

Planning how and what to save: a key part of managing money

Your budget will tell you whether you’re currently spending more or less than you earn. If you’re
currently spending more, it can help to sit down together as a family and think about where you can
save money. And if you’re already spending less than you earn, you can look at how to save and how
to use your savings.

Here are some tips for making a savings plan:

● Review your spending. Figure out whether you’re saving as much as you can. Could you
spend less on certain items? Do you have any high-interest credit cards or other loans?

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Could you pay these off as soon as possible and look into more suitable credit or loan
options? It’s a good idea to do this regularly.
● Build a savings buffer. Before you start saving for your wants, it’s really important to keep
extra savings for financial emergencies. For example, you could aim to keep some money in
a separate savings account for emergencies.
● Decide what you’re saving for. What are your goals? How much do you need to save to
achieve them?
● Set a deadline for your goal. Give yourself plenty of time – saving can seem to take forever.
But be realistic, and you’ll avoid feeling pressure.
● Open a fee-free bank account, which is separate from your main account. You can use this
account only for saving towards your goal. You can set up a direct debit from your main
account to regularly transfer a set savings amount.
● Look into other options, like asking your employer to split your salary payment, so some of
it goes into your separate savings account.
● Speak to your bank, financial institution or financial adviser if you want more advice.

Once you’ve come up with a savings plan, it’s a good idea to review the pros and cons before you
start. This way you’ll know how it’ll affect your family life. If there are parts of your plan you’re
unsure about, seek advice or double-check your calculations before you go ahead.

How Much To Spend On Each Item?

Each family has its own needs which are different from those of other families. (Even your needs as a
student for books, copy, pencil pen, eraser etc. will be different from other students). How much a
family spends on the different items depends on many factors.

Let us now consider these factor

● Income- The total family income from all sources will basically help to decide how much can
be spent on various items. More the income will be the money spent for purchasing
different items.
● Size of family- More the number of family members more will be the expenditure on food
and clothing. Hence, the family will be able to spend less on entertainment and luxuries etc.
● Age of family members- If there are school going children, expenditure on education, school
uniform, stationary etc. will be more.
● Place of residence- In big cities like Delhi and Mumbai, cost of living, food, house rent, travel
expenses and school fee are higher than in small towns and villages.
● Skills- If some family members have certain skills like making preserves or doing household
repairs like repairing electrical equipment, carpentry etc. then the family will have to spend
less on getting the repairs done.
● Savings- Keeping in mind the future needs.

Prioritize these needs:

You have listed all the needs of your family members. Before making a spending plan it is important
to prioritize all the needs. Below is given a prioritized list of needs according to a particular family.
You will agree that the needs and priorities of each family are different.

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Characteristics of a Good Budget

● Accurate estimates of income: Find the exact amount of income that will be available to you
for expenditure. (Gross income of the family differs from its take home pay).
● Accurate estimates of expenditure: The expenditure estimate should be as accurate as
possible. Look up the budget of the previous years or the records of past expenditures and
savings.
● Reasonably accurate allocation of money: The resources on expenditures side should be
reasonably accurate; the family must be able to determine its present needs and wants and
anticipate future changes (e.g. for some families budgeting for October- November will need
extra outlay on spending on festivals and other occasions.)
● Flexible: A budget is made flexible by allowing sufficient margin on certain items. It should
allow you to divert some money from one item to another as per your need. For example,
some money can be easily diverted from entertainment in case of an unexpected high
medical expenditure.

What is the power of Compounding?

With simple interest, you earn interest only on the principal (i.e., the amount you initially invested);
while with compounding, you earn interest on the principal as well as, previously earned interest.

A sum of Rs.100/- invested for 10 years, at 10% rate of interest, amounts to Rs. 200/- with simple
interest, and Rs. 260/- (approx.) with compound interest, at maturity.

Rule of 72: Rule of 72 is a quick, useful formula that is popularly used to estimate the number of
years required to double the invested money at a given annual rate of return Years to double = 72 /
Interest rate.

An amount of Rs.1000/-, invested at 9 % rate of interest, will double in 72/9 = 8 years

A Financial plan can help you to:

● Balance today’s needs with your goals for the future
● Make the best use of your financial resources
● Adapt change in your circumstances and needs
● Save money you need to achieve your goals
● Prepare for unexpected emergencies
● Protect what is most important to you
● Prepare for retirement
● Leave something for your family
● Manage your taxes
● Live your life with a sense of direction and security

Financial Inclusion is described as the method of offering banking and financial solutions and
services to every individual in the society without any form of discrimination. It primarily aims to
include everybody in the society by giving them basic financial services without looking at a person’s
income or savings. Financial inclusion chiefly focuses on providing reliable financial solutions to the

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economically underprivileged sections of the society without having any unfair treatment. It intends
to provide financial solutions
without any signs of inequality. It is
also committed to being transparent
while offering financial assistance
without any hidden transactions or
costs.

Financial inclusion wants everybody

in the society to be involved and
participate in financial management judiciously. There are many poor households in India that do
not have any access to financial services in the country. They are not aware of banks and their
functions. Even if they are aware of banks, many of the poor people do not have the access to get
services from banks.

They may not meet minimum eligibility criteria laid by banks and hence, they will not be able to
secure a bank’s services. Banks have requirements such as minimum income, minimum credit score,
age criteria, and minimum years of work experience. A bank will provide a deposit or a loan to an
applicant only if he or she meets these criteria. Many of the poor people may be unemployed
without any previous employment record due to lack of education, lack of resources, lack of money,
etc.

These economically underprivileged people of the society may also not have proper documents to
provide to the banks for verification of identity or income. Every bank has certain mandatory
documents that need to be furnished during a loan application process or during a bank account
creation process. Many of these people do not have knowledge about the importance of these
documents. They also do not have access to apply for government-sanctioned documents.

Financial inclusion aims to eliminate these barriers and provide economically priced financial
services to the less fortunate sections of the society so that they can be financially independent
without depending on charity or other means of getting funds that are actually not sustainable.
Financial inclusion also intends to spread awareness about financial services and financial
management among people of the society. Moreover, it wants to develop formal and systematic
credit avenues for the poor people.

For several years, only the middle and high classes of the society procured formal types of credit.
Poor people were forced to rely on unorganized and informal forms of credit. Many of them were
uneducated and did not have basic knowledge about finance and hence, they got cheated by the
greedy and rich people of the society. Several poor people have been exploited for years in the
context of financial assistance.

Financial Inclusion Schemes in India: The Government of India has been introducing several
exclusive schemes for the purpose of financial inclusion. These schemes intend to provide social
security to the less fortunate sections of the society. After a lot of planning and research by several
financial experts and policymakers, the government launched schemes keeping financial inclusion in

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mind. These schemes have been launched over different years. Let us take a list of the financial
inclusion schemes in the country:
● Pradhan Mantri Jan Dhan Yojana (PMJDY)
● Atal Pension Yojana (APY)
● Pradhan Mantri Vaya Vandana Yojana (PMVVY)
● Stand Up India Scheme
● Pradhan Mantri Mudra Yojana (PMMY)
● Pradhan Mantri Suraksha Bima Yojana (PMSBY)
● Sukanya Samriddhi Yojana
● Jeevan Suraksha Bandhan Yojana
● Credit Enhancement Guarantee Scheme (CEGS) for Scheduled Castes (SCs)
● Venture Capital Fund for Scheduled Castes under the Social Sector Initiatives
● Varishtha Pension Bima Yojana (VPBY)

Objectives of Financial Inclusion: Financial inclusion intends to help people secure financial services
and products at economical prices such as deposits, fund transfer services, loans, insurance,
payment services, etc.
● It aims to establish proper financial institutions to cater to the needs of the poor people.
These institutions should have clear-cut regulations and should maintain high standards that
are existent in the financial industry.
● Financial inclusion aims to build and maintain financial sustainability so that the less
fortunate people have a certainty of funds which they struggle to have.
● Financial inclusion also intends to have numerous institutions that offer affordable financial
assistance so that there is sufficient competition so that clients have a lot of options to
choose from. There are traditional banking options in the market. However, the number of
institutions that offer inexpensive financial products and services is very minimal.
● Financial inclusion intends to increase awareness about the benefits of financial services
among the economically underprivileged sections of the society.
● The process of financial inclusion works towards creating financial products that are suitable
for the less fortunate people of the society.
● Financial inclusion intends to improve financial literacy and financial awareness in the
nation.
● Financial inclusion aims to bring in digital financial solutions for the economically
underprivileged people of the nation.
● It also intends to bring in mobile banking or financial services in order to reach the poorest
people living in extremely remote areas of the country.
● It aims to provide tailor-made and custom-made financial solutions to poor people as per
their individual financial conditions, household needs, preferences, and income levels.
● There are many governmental agencies and non-governmental organizations that are
dedicated to bringing in financial inclusion. These agencies are focused on improving the
access to receiving government-approved documents. Many poor people are unable to open
bank accounts or apply for a loan as they do not have any identity proof. There are so many
people who live in rural areas or tribal villages who do not have knowledge about
documents such as PAN, Aadhaar, Driver’s License, or Electoral ID. Hence, they cannot avail
many of the services offered by governmental or private institutions. Due to lack of these

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documents, they are unable to avail any form of subsidies offered by the government that
they are actually entitled to.

Financial inclusion is very particular about including women in financial management activities of a
household. Financial inclusion believes that women are more capable of handling finances efficiently
when compared to men of a house. Hence, financial inclusion activities target women by helping
them get started engaging in financial management.

Financial technology (fintech) refers to the utilization of advanced technology in the financial
industry or the financial sector. With the introduction of financial technology or fintech, financial
inclusion is improving extensively across the whole world. India also has many fintech companies
that are constantly working towards simplifying the process of providing financial services to
prospective clients. Fintech companies have also been successful in offering financial services and
products at minimal costs. This is very helpful to customers as their expenses are low and they can
distribute their savings to their other needs also.

The Government of India has launched several electronic wallet systems through smartphone apps
such as Bharat Interface for Money (BHIM), Aadhaar Pay, and lots more! Electronic wallets or e-
wallets refer to wallets that can be used with the help of electronic means such as mobile phones.
These wallets replace physical wallets. A user can make cashless payments through online as well as
offline means.

The Government of India intends to carry out crores of digital financial transactions for the present
and upcoming years with the help of Unified Payment Interface (UPI), Unstructured Supplementary
Service Data (USSD) banking methods, Immediate Payment Service (IMPS), National Electronic Funds
Transfer (NEFT), Aadhaar Pay, debit cards, BHIM, and credit cards.

The Reserve Bank of India works on exclusive programmes and plans in order to have financial
inclusion in the nation effectively. It applies a bank-led strategy in order to attain financial inclusion
smoothly. The central bank of India also has firm regulations in place that need to be followed by
every bank. The RBI also is offering qualified assistance to every bank in the nation in order to attain
its financial inclusion objectives.

The 3 main elements of an integral financial strategy are financial literacy or education, financial
stability, and financial inclusion. Some of the special financial products provided to them include:

● General Credit Cards (GCC): Banks were asked by the RBI to launch and offer General Credit
Card facilities with an amount of up to Rs.25,000 at their branches located in semi-urban and
rural areas.
● Kisan Credit Cards (KCC): The Reserve Bank of India also instructed banks to provide Kissan
Credit Cards exclusively to small farmers who earn very low incomes and who have very
limited funds due to which they cannot invest in proper farming tools, fertilizers, pesticides,
crop seeds, tractors, land for farming, storage warehouses, etc. They are forced to rely on
other wealthy landlords for getting land to sow crops. These Kissan Credit Cards are

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intended to help farmers make instant purchases whenever required. Many times, farmers
give up on purchasing things required for their occupation due to lack of funds.
● ICT-Based Accounts via BCs: The Reserve Bank also devised a plan to help banks to reach out
to the unbanked individuals of the society by offering information and communications
technology (ICT)-based bank accounts with the help of business correspondents (BCs). These
accounts allow users to make withdrawals of cash, create deposits, and apply for loans and
other forms of credit through electronic forms. This type of account makes banking
inexpensive and simple.
● Increase in ATMs: The Reserve Bank of India also reported that many rural parts of the
nation do not have enough automated teller machines (ATMs) and this is hampering many
buying and selling operations of the people residing in those areas. In order to increase the
availability of physical cash for these people, the number of ATMs increased massively.

The main challenges of Financial Inclusion are mentioned below:

● Bank services do not have enough support for scalability.
● The technology adoption is limited.
● The lack of the availability of documents for the purposes of banking activities.
● Almost minimal financial literacy.
● In the case of rural areas, telecom connectivity and infrastructure are poor.

2.2 Savings: Different options in the market: Why, How and Where to save

Saving money is one of the essential aspects of building wealth and having a secure financial future.
Saving money gives you a way out from uncertainties of life and provides you with an opportunity to
enjoy a quality life. Putting aside a sum of money in a systematic manner can help you steer out of
many hurdles and obstacles in life. It can support you in your hour of need and ensure that your
family has something to fall back on in case of an unfortunate event. There are many reasons to save
and several ways to save with ease.

Here are some of the important aspects of savings that you should know.

Reasons why saving money is important

Savings is crucial for everyone, regardless of their earnings, spending and life stage. Here are some
reasons why you need to start saving.
● It offers peace of mind: Knowing that you have a certain amount accumulated for times of
your need, gives you the peace of mind. You can lead a stress-free life with the knowledge
that you will not have to struggle if things take an unexpected route
● It gives you a better future: Your savings can be the answer to a number of your goals. You
can buy a house, accumulate funds for your retirement, or purchase a vehicle. You can
secure your future, indulge in the best of things that life has to offer and live a very fulfilling
life
● It provides for your children’s education: With a considerable amount of savings, you can
fuel your children’s dreams and pay for the best schools and colleges across the world

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● You can plan your short term goals: Savings are not just aimed at the long term. You can
also benefit from savings in the short term. A lot of people save for a few months and then
travel
● It gives your family security in case of an unfortunate event: By saving in a disciplined
manner, you can make sure that your family is well-provided for. In unfortunate times, your
savings can act as a cushion for your loved ones and help them overcome any financial
difficulty

Setting SMART Goals

If you want to go somewhere, you need to know the road. It's the same with your money. To
manage your money well, you need to know where you want to go. It's important to set short,
medium and long-term financial goals.

For example, “saving for a motorbike” is vague and hard to measure. How will you know if you are
making progress or have achieved it? On the other hand, “saving 50000 rupees for a 100 CC
motorbike within 10 months'' is SMART. It’s specific – you know exactly what you are saving for. It’s
measurable – you know
how much you will
need. It's achievable
and realistic – you can
break the total amount
needed into smaller
steps (saving 5000
rupees a month) that
will be easier to do. And
it's time bound you’ve
set a deadline of 10
months.

Tips to enable savings

If you are new to savings or find it difficult to stick to your objective of saving, then you can try the
following steps.
● Limit your credit card usage: Credit cards may provide a temporary sense of relief, but the
high rates of interest can deplete your savings in no time. It helps to limit your debt and
restrict credit card purchases to ensure that your savings are intact and growing
● Keep a track of your expenses: If you find it difficult to save regularly, try to record and keep
a track of your monthly expenditure. This will offer you a clear picture of where you spend.
You can then identify the things that are not important and aim at saving more by avoiding
those purchases
● Create a budget for savings: It helps to devise a budget for each month. You can create a
plan at the beginning of the month to target savings and set limits for spending. This lets you
focus on what is important, reduces the chances of over-spending, and lets you save as
planned.

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● Invest in long term financial tools: When you save, it is also important to see your savings
grow with time. Investing your money in a long-term investment plan can have many
additional benefits. These plans offer a lucrative rate of interest that lets your money retain
its value and beat inflation. One such instrument is the savings or endowment plan.

Saving Versus Investment

Saving and investing are both important concepts for
building a sound financial foundation, but they’re not
the same thing. While both can help you achieve a
more comfortable financial future, consumers need to
know the differences and when it’s best to save
compared to when it’s best to invest.

The biggest difference between saving and investing is the level of risk taken. Saving typically results
in you earning a lower return but with virtually no risk. In contrast, investing allows you the
opportunity to earn a higher return, but you take on the risk of loss in order to do so.

Characteristi Saving Investing

c
Account type Bank Brokerage
Return Relatively low Potentially higher or lower
Risk Virtually none on FDIC-insured Varies by investment, but there is
accounts always the possibility of losing some or
all of your investment capital
Typical Savings accounts, CDs, money- Stocks, bonds, mutual funds and ETFs
products market accounts
Time horizon Short Long, 5 years or more
Difficulty Relatively easy Harder
Protection Only a little Potentially a lot
against
inflation
Expensive? No Could be, depending on how much you
buy and realize taxable gains
Liquidity High, unless CDs High, though you may not get the exact
amount you put into the investment
depending on when you cash in

The pros and cons of saving

There are plenty of reasons you should save your hard-earned money. For one, it’s usually your
safest bet, and it’s the best way to avoid losing any cash along the way. It’s also easy to do, and you
can access the funds quickly when you need them.

● All in all, saving comes with these benefits:

o Savings accounts tell you upfront how much interest you’ll earn on your balance.
o The Federal Deposit Insurance Corporation guarantees bank accounts up to
$250,000, so while the returns are lower, you’re not going to lose any money when
using a savings account.

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o Bank products are generally very liquid, meaning you can get your money as soon as
you need it, though you may incur a penalty if you want to access a CD before its
maturity date.
o There are minimal fees. Maintenance fees or Regulation D violation fees (when
more than six transactions are made out of a savings account in a month) are the
only way a savings account at an FDIC-insured bank can lose value.
o Saving is generally straightforward and easy to do. There usually isn’t any upfront
cost or learning curve.

● Despite its perks, saving does have some drawbacks, including:

o Returns are low, meaning you could earn more by investing (but there’s no
guarantee you will.)
o Because returns are low, you may lose purchasing power over time, as inflation eats
away at your money.

The pros and cons of investing

Saving is definitely safer than investing, though it will likely not result in the most wealth
accumulated over the long run.

● Here are just a few of the benefits that investing your cash comes with:
o Investing products such as stocks can have much higher returns than savings
accounts and CDs. Over time, the Standard & Poor’s 500 stock index (S&P 500), has
returned about 10 percent annually, though the return can fluctuate greatly in any
given year.
o Investing products are generally very liquid. Stocks, bonds and ETFs can easily be
converted into cash on almost any weekday.
o If you own a broadly diversified collection of stocks, then you’re likely to easily beat
inflation over long periods of time and increase your purchasing power. Currently,
the target inflation rate that the Federal Reserve uses is 2 percent, but it’s been
much higher over the past year. If your return is below the inflation rate, you’re
losing purchasing power over time.

● While there’s the potential for higher returns, investing has quite a few drawbacks,
including:
o Returns are not guaranteed, and there’s a good chance you will lose money at least
in the short term as the value of your assets fluctuates.
o Depending on when you sell and the health of the overall economy, you may not get
back what you initially invested.
o You’ll want to let your money stay in an investment account for at least five years,
so that you can hopefully ride out any short-term downdrafts. In general, you’ll want
to hold your investments as long as possible — and that means not accessing them.
o Because investing can be complex, you’ll probably need some expert help doing it —
unless you have the time and skillset to teach yourself how.

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o Fees can be higher in brokerage accounts. You may have to pay to trade a stock or
fund, though many brokers offer free trades these days. And you may need to pay
an expert to manage your money.

Popular Investment Options in India

You have numerous investment options to choose from. However, you have to ensure that you are
investing in only those options that fall under your risk tolerance and serve your requirements.

The following are the top 7 investment options in India:

1) Direct Equity: Direct equity, commonly referred to as investing in stocks, is probably the most
potent investment vehicle. When you buy a company’s stock, you buy partial ownership of that
company. You directly invest in the company’s growth and development. You need to have
enough time and possess the market knowledge to benefit from your investment. If not, then
investing in direct equity is as good as speculation. Stocks are offered publicly listed companies
through the recognised stock exchanges and can be bought by any investor who has a Demat
account and undergone KYC verification. Stocks are ideal for long-term investments. You have to
actively manage your investments as various economic and business factors influence stocks.
Also, you need to understand that the returns are not guaranteed and be willing to assume the
associated risks.

2) Mutual Funds: Mutual funds have been around for the past few decades, and are gaining
popularity amongst millennials. A mutual fund pools investment from various individual and
institutional investors who have a common investment objective. The pooled sum is managed by
a finance professional called the fund manager, who invests in securities and assets to generate
optimum returns for investors. Mutual funds are broadly divided into equity, debt and hybrid
funds. Equity mutual funds invest in stocks and equity-related instruments, while debt mutual
funds invest in bonds and papers. Hybrid funds invest across equity and debt instruments.
Mutual funds are flexible investment vehicles, in which you can begin and stop investing as per
your convenience. Any individual may consider investing in mutual funds. You don’t need to
have time or knowledge to invest in mutual funds as the fund manager takes care of portfolio
constitution, and you only have to invest. However, it is advisable to invest in only those funds
whose risk levels and objectives match yours. The returns are not guaranteed as they are
dependent entirely on the market movements. Note that past performance of a fund does not
indicate future returns.

3) Fixed Deposits: Fixed deposits are an investment option offered by banks and financial
institutions under which you deposit a lump sum for a fixed period and earn a predetermined
rate of interest. Unlike mutual funds and stocks, fixed deposits offer complete capital protection
as well as guaranteed returns. However, you compromise on the returns as they remain the
same. Fixed deposits are ideal for the conservative investor. The interest offered by fixed
deposits change as per the economic conditions and are decided by the banks depending on the
RBI’s policy review decisions. Fixed deposits are typically locked-in investments, but investors
are often allowed to avail loans or overdraft facilities against them. There is also a tax-saving
variant of fixed deposit, which comes with a lock-in of 5 years.

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4) Recurring Deposits: A recurring deposit (RD) is another fixed tenure investment that allows
investors to invest a fixed amount every month for a predefined time and earn a fixed rate of
interest. Banks and post office branches offer RDs. The interest rates are defined by the
institution offering it. An RD allows investors to invest a small amount every month to build a
corpus over a defined time period. RDs offer complete capital protection as well as guaranteed
returns. Like fixed deposits, RDs are recommended for risk-averse investors. v)

5) Public Provident Fund: Public Provident Fund (PPF) is a long-term tax-saving investment vehicle
that comes with a lock-in period of 15 years. It is offered by the Government of India and the
sovereign guarantees back your investments. The interest rate offered by PPF is revised on a
quarterly basis by the Government of India. The corpus withdrawn at the end of the 15 years is
entirely tax-free in the investor’s hands. PPF also allows loans and partial withdrawals after
certain conditions have been met. Premature withdrawals are permitted to meet certain
conditions, and you can extend your investment in a five-year block upon maturity.

6) Employee Provident Fund: Employee Provident Fund (EPF) is another retirement-oriented

investment vehicle that helps salaried individuals get a tax break under the provisions of Section
80C of the Income Tax Act, 1961. EPF deductions are typically a percentage of an employee’s
monthly salary, and the same amount is matched by the employer as well. Upon maturity, the
withdrawn corpus from EPF is also entirely tax-free. EPF rates are also decided by the
Government of India every quarter, and the sovereign guarantees back your investments in EPF.
You can contribute more than the minimum prescribed amount under the Voluntary Provident
Fund (PPF). However, you need to note that you can access your EPF investments only on
meeting specific criteria and your EPF account matures only when you retire.

7) National Pension System: The National Pension System (NPS) is a relatively new tax-saving
investment option. Investors subscribing under the NPS scheme will mandatorily stay locked-in
until their retirement and can earn higher returns than PPF or EPF. This is because the NPS offers
plan options that invest in equities as well. The maturity corpus from the NPS is not entirely tax-
free, and a part of it has to be used to purchase an annuity that will give the investor a regular
pension. You can withdraw only up to 40% of the entire corpus accumulated as a lump sum,
while the remaining goes towards an annuity plan. Some government employees are
compulsorily required to subscribe to NPS.

Debt Management
Debt management is a way to get your debt under control
through financial planning and budgeting. The goal of a
debt management plan is to use these strategies to help
you lower your current debt and move toward
eliminating it completely.

Debt management plans typically allow anywhere from

three to five years to repay debts included in the plan. As
part of the plan, creditors may agree to reduce interest rates and reduce or waive certain fees.

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Debt management may be an option if you have unsecured debts that you need help getting a
handle on. The types of debt you may be able to pay off through a debt management program
include:
● Credit cards
● Medical bills
● Personal loans or lines of credit

Advantages of debt management plans include:

● You could pay lower interest rates: Most credit counselors work with creditors to secure
lower interest rates for your payments.
● Your credit score may get a bump: While debt management plans won’t directly affect your
credit score, certain factors, such as the fact that you’ll be making consistent payments on
time, will most likely increase your score.
● You’ll only need to make one payment
per month: You’ll be able to focus on just
one payment per month, instead of
having to think about several monthly
bills.
● You might pay your debt off quicker: With
lower interest rates and better terms, you
might be able to pay off your debt faster
than if you tried to pay it off yourself.
● Creditors/collectors will stop contacting
you: Any collection activity should stop once you start your plan.
● Will help you stay organized: Your counselor will put you on a plan with defined payment
dates and an end date of when your debt will be paid. You’ll have a plan of action to attack
your debt.

Disadvantages of debt management plans include:

● Leaving the plan will mean losing benefits: If you decide to quit the plan, you’ll lose all
benefits, such as reduced interest rates.
● You can’t take out new credit: While enrolled in a plan, you won’t be able to apply for or use
additional credit.
● You’ll have to close your credit accounts: You won’t have access to credit cards for the
duration of the program, though some agencies may allow you to keep one credit card open
in case of emergencies.
● Not every creditor accepts debt management plans: Debt management plans are not
universally accepted. Make sure to check with your counselor on whether your creditors
accept them.
● You need to be patient: Debt management doesn’t happen overnight. You need to be
prepared to stick with a plan for anywhere from 3 to 5 years.

Debt settlement is an attempt to convince a credit card company to accept only a portion of what
you owe and forgive the rest of the debt.

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● Debt Settlement Program Advantages

o Debt settlement could significantly reduce the amount of debt you actually pay.
o Debt settlement may help you avoid bankruptcy and asset liquidation.
o An effective debt settlement program may eliminate your debt in 2-3 years.
● Debt Settlement Program Disadvantages
o A debt settlement program requires you to stop paying your creditors, which will add a
significant amount to your debt because of late charges and the interest applied.
o Debt settlement companies can charge a fee for each credit card debt they settle. If you
have 4-5 cards, they may only settle three of them, but get rejected by the others. Thus
you will have paid a fee and the problem is still unsolved.
o Debt settlement is a stain on your credit report that will be there for seven years. You
may have difficulty getting any other type of loan (home or auto) during that time.
o Businesses are not required to accept settlement offers and some refuse to deal with
debt settlement companies.
o The fees for the service, plus the additional charges for late payments and interest,
could wipe out any gain you expect to realize.
o Any amount that has been forgiven may have to be claimed as income on your tax
return.
o Debt settlement is a gamble. If your creditors refuse to settle, you’ll be in an even worse
financial situation.

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Notes
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Exercise (C2)
1. What is the difference between essential and non-essential items of expenditure?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

2. Why is Financial Inclusion important?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

3. Differentiate between Savings and Investment.

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

4. What is the difference between a debt management plan and a debt settlement?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

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Chapter 3: Basic Banking Practices

Unit Objectives
At the end of this unit, you will be able to:

1. Be familiar with banking services and deposit accounts

2. The Importance of Know Your Customer (KYC) in Bank Transactions
3. Understand the different types of ATMs and the advantages of the PMJDY Scheme
4. Be familiar with cashless banking and the various methods for making digital payments,
including POS machines, BHIM, PayTM, UPI, USSD, and e-RUPI
5. Understand the fundamentals of loans, repayment methods, and CIBIL scores

3.1 Banking Services; Deposit Accounts; KYC Importance; Bank

Transactions; ATM Types; About PMJDY
A bank is a financial institution that is authorized to receive deposits and offer loans to their
customers including individuals, corporations, and groups. Additionally, they provide financial
services to the regular
public such as loans,
wealth management,
investment services,
currency exchange,
safe deposit boxes and
more.

Banks are important to

a country’s growth and
development and
essential to its financial
stability. This is why most of the banks are highly regulated by a governmental authority of the
country.

In the modern era, there are different types of banks that are essential to the smooth functioning of
the economy.

RBI – Reserve Bank of India

The Reserve Bank of India (RBI) is India’s central bank, also known as the banker’s bank.

The RBI controls the monetary and other banking policies of the Indian government. The Reserve
Bank of India (RBI) was established on April 1, 1935, in accordance with the Reserve Bank of India
Act, 1934. The Reserve Bank has been permanently situated in Mumbai since 1937.

Establishment of Reserve Bank of India

The Reserve Bank is fully owned and operated by the Government of India.

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The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:
● Regulating the issue of Banknotes
● Securing monetary stability in India
● Modernizing the monetary policy framework to meet economic challenges

The Reserve Bank’s operations are governed by a central board of directors, RBI is on the whole
operated with a 21-member central board of directors appointed by the Government of India in
accordance with the Reserve Bank of India Act.

The Central board of directors comprise of:

● Official Directors – The governor who is appointed/nominated for a period of four years
along with four Deputy Governors
● Non-Official Directors – Ten Directors from various fields and two government Official

Objectives
The primary objectives of RBI are to supervise and undertake initiatives for the financial sector
consisting of commercial banks, financial institutions and non-banking financial companies (NBFCs).

Some key initiatives are:

● Restructuring bank inspections
● Fortifying the role of statutory auditors in the banking system

Legal Framework
The Reserve Bank of India comes under the purview of the following Acts:
● Reserve Bank of India Act, 1934
● Public Debt Act, 1944
● Government Securities Regulations, 2007
● Banking Regulation Act, 1949
● Foreign Exchange Management Act, 1999

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● Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest

Act, 2002
● Credit Information Companies(Regulation) Act, 2005
● Payment and Settlement Systems Act, 2007

Major Functions of RBI

● Monetary Authority
o Formulating and implementing the national monetary policy.
o Maintaining price stability across all sectors while also keeping the objective of
growth.
● Regulatory and Supervisory
o Set parameters for banks and financial operations within which banking and
financial systems function.
o Protect investors' interest and provide economic and cost-effective banking to the
public.
● Foreign Exchange Management
o Oversees the Foreign Exchange Management Act, 1999.
o Facilitate external trade and development of foreign exchange market in India.
● Currency Issuer
o Issues, exchanges or destroys currency and not fit for circulation.
o Provides the public adequately with currency notes and coins and in good quality.
● Developmental role
o Promotes and performs promotional functions to support national banking and
financial objectives.
● Related Functions
o Provides banking solutions to the central and the state governments and also acts as
their banker.
o Chief Banker to all banks: maintains banking accounts of all scheduled banks.

RBI Policies
● Repo Rate: Repo or repurchase rate is the benchmark interest rate at which the RBI lends
money to all other banks for a short-term. When the repo rate increases, borrowing from
RBI becomes more expensive and hence customers or the public bear the outcome of high-
interest rates.
● Reverse Repo Rate (RRR): Reverse Repo rate is the short-term borrowing rate at which RBI
borrows money from other banks. The Reserve Bank of India uses this method to reduce
inflation when there is excess money in the banking system.
● Cash Reserve Ratio (CRR): Cash Reserve Ratio is the particular share of any bank’s total
deposit that is mandatory and to be maintained with the Reserve Bank of India in the form
of liquid cash.
● Statutory liquidity ratio (SLR): Leaving aside the cash reserve ratio, banks are required to
maintain liquid assets in the form of gold and approved securities. A higher SLR disables the
banks to grant more loans.

Banks are divided into several sorts. The following are the different types of banks in India:

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1. Central Bank
2. Cooperative Banks
3. Commercial Banks
4. Regional Rural Banks (RRB)
5. Local Area Banks (LAB)
6. Specialized Banks
7. Small Finance Banks
8. Payments Banks

Central Bank
● Our country's central bank is the Reserve Bank of India. Each country has a central bank that
oversees all of the country's other financial institutions.
● The central bank's principal role is to serve as the government's bank and to oversee and
regulate the country's other banking institutions. The functions of a country's central bank
are listed below:
o assisting other financial institutions
o Issuing money and enforcing monetary policies
o The financial system's supervisor
● In other words, the country's central bank is also known as the banker's bank because it
assists other banks in the country and runs the country's financial system under the
supervision of the Government.

Cooperative Banks
● These banks are governed by a law enacted by the state government. They provide short-
term loans to agriculture and related industries.
● Cooperative banks' principal purpose is to enhance social welfare by providing low-interest
loans.
● They are arranged in a three-tiered system.
● State Cooperative Banks, Tier 1 (State Level) (regulated by RBI, State Govt, NABARD)

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● The RBI, the government, and the National Bank for Agriculture and Rural Development
(NABARD) all contribute to the project's funding. After that, the money is allocated to the
general population.
● These banks are subject to CRR and SLR concessions. (SLR: 25%, CRR: 3%)
● The state owns the company, and the senior management is chosen by the members.
● Central/District Cooperative Banks, Tier 2 (District Level)
● Tier 3 (Village Level) – Agriculture (Primary) Cooperative Banks

Commercial Banks
● The Banking Companies Act of 1956 established the company.
● They function on a commercial basis, with profit as their primary goal.
● They are owned by the government, state, or any private company and have a unified
structure.
● They look after all sectors, from rural to urban.
● Unless the RBI directs otherwise, these banks do not charge concessional interest rates.
● These banks' primary source of funds is public deposits.
● Commercial banks are further classified into three types:
● Public sector banks are those in which the government or the country's central bank owns
the majority of the stock.
● Banks in the private sector are those in which a private entity, an individual, or a group of
people owns the majority of the stock.
● Foreign Banks – This category includes banks with headquarters in other nations and
branches in the United States.

Regional Rural Banks (RRB)

● These are unique types of commercial banks that lend to agriculture and the rural economy
at a reduced rate.
● RRBs were founded in 1975 and are governed by the 1976 Regional Rural Bank Act.
● RRBs are 50/50 joint ventures between the federal government and state governments
(15%), as well as a commercial bank (35 percent).
● Between 1987 and 2005, 196 RRBs were established.
● From 2005 forward, the government began merging RRBs, bringing the total number of RRBs
to 82.
● A single RRB cannot open branches in more than three districts that are geographically
connected.

Local Area Banks (LAB)

● In India, it was first introduced in 1996.
● The private sector organizes these.
● Local Area Banks' primary goal is to make a profit.
● Local Area Banks are governed by the 1956 Companies Act.
● There are now just four Local Area Banks in existence, all of which are located in South India.

Specialized Banks

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● Certain banks exist just to serve a certain purpose. Specialized banks are the name for
several types of financial institutions. These are some of them:
● SIDBI (Small Industries Development Bank of India) - SIDBI can provide a loan for a small-
scale enterprise or business. With the support of this bank, small businesses can get current
technology and equipment.
● Export and Import Bank (EXIM Bank) - EXIM Bank stands for Export and Import Bank. This
type of bank can provide loans or other financial help to foreign countries that are exporting
or importing goods.
● NABARD (National Bank for Agricultural and Rural Development) – People can resort to
NABARD for any type of financial support for rural, handicraft, village, and agricultural
development.
● Other specialist banks exist, each with a unique function to play in the financial development
of the country.

Small Finance Banks

This sort of bank, as the name implies, provides loans and financial help to micro industries, small
farmers, and the unorganized sector of society. The country's central bank oversees these
institutions.

The following is a list of our country's small finance banks:

● AU Small Finance Bank
● Equitas Small Finance Bank
● Jana Small Finance Bank
● Northeast Small Finance Bank
● Capital Small Finance Bank
● Fincare Small Finance Bank
● Suryoday Small Finance Bank
● Ujjivan Small Finance Bank
● Esaf Small Finance Bank
● Utkarsh Small Finance Bank

Payments Banks
The Reserve Bank of India conceptualized the payments bank, a newly developed form of banking.
People who have a payment bank account can only deposit up to Rs. 1,00,000/- and cannot apply for
loans or credit cards through this account.

Payment banks provide services such as internet banking, mobile banking, ATM card issuance, and
debit card issuance. The following is a list of our country's few payment banks:
● Airtel Payments Bank
● India Post Payments Bank
● Fino Payments Bank
● Jio Payments Bank
● Paytm Payments Bank
● NSDL Payments Bank

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Development Banks
Financial institutions that provide long-term credit in order to support capital-intensive investments
spread over a long period and yielding low rates of return with considerable social benefits are
known as Development Banks. The major development banks in India are; Industrial Finance
Corporation of India (IFCI Ltd), 1948, Industrial Development Bank of India' (IDBI) 1964, Export-
Import Banks of India (EXIM) 1982, Small Industries Development Bank Of India (SIDBI) 1989,
National Bank for Agriculture and Rural Development (NABARD) 1982.

The banking system of a country has the capability to heavily influence the development of a
country’s economy. It is also instrumental in the development of rural and suburban regions of a
country as it provides capital for small businesses and helps them to grow their business. The
organized financial system comprises Commercial Banks, Regional Rural Banks (RRBs), Urban Co-
operative Banks (UCBs), Primary Agricultural Credit Societies (PACS) etc. caters to the financial
service requirement of the people. The initiatives taken by the Reserve Bank and the Government of
India in order to promote financial inclusion have considerably improved the access to the formal
financial institutions. Thus, the banking system of a country is very significant not only for economic
growth but also for promoting economic equality.

Types of Bank Services:

Banks provide bank services to attract customers, from giving loans, credit and debit cards, digital
financial services, and even personal services. However, some essential modern services are offered
by most commercial banks. 18 types of banking services are;
1. Advancing of Loans.
2. Overdraft.
3. Discounting Bills of Exchange.
4. Check/Cheque Payment
5. Collection and Payment Of Credit Instruments
6. Foreign Currency Exchange.
7. Consultancy.
8. Bank Guarantee.
9. Remittance of Funds.
10. Credit cards.
11. ATMs Services.
12. Debit cards.
13. Home banking.
14. Online banking.
15. Mobile Banking.
16. Accepting Deposit.
17. Priority banking.
18. Private banking.

Types of Bank Accounts:

One major aspect of the banking industry is the provision of bank accounts. There are various types
of bank accounts which can be opened in any Public or Private sector banks.

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Given below is the list of bank accounts that we shall be discussing in this article:
1. Savings Account
2. Current Account
3. Recurring Deposit Account
4. Fixed Deposit Account
5. DEMAT Account
6. NRI Account

Initially, there were only four types of bank accounts that were operating in India. These included
the Current Account, Savings Account, Recurring Deposit Account and Fixed Deposit Account. But
later with the advancement in the banking sector, various other types of bank accounts were
introduced.

Savings Account
As the name suggests, the savings accounts can be opened by an individual or jointly by two people
with an aim to save money.

The main benefit of opening a savings bank account is that the bank pays you interest for opening
this type of account with them.

Given below are a few features of the Savings account:

● There is no limit to the number of times the account holder can deposit money in this
account but there is a restriction on the number of times money can be withdrawn from this
account.
● The rate of interest that an account holder get varies from 4% to 6% per annum
● There is no minimum balance that needs to be maintained for this type of an account
● The savings account holders can get an ATM/Debit/Rupay Card if they want to
● Savings bank account is further divided into two types: Basic Savings Bank Deposit Account
(BSBDA) and the other one is Basic Saving Bank Deposit Accounts Small Scheme(BSBDS)
● The savings bank account is mostly eligible for students, pensioners and working
professionals

Current Account
The second type of bank account is the current bank account. These accounts are not used for the
purpose of savings.

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Some important pointers related to the current bank account have been discussed below:
● This type of bank account is mostly opened by businessmen. Associations, Institutions,
Companies, Religious Institutions and other business-related works, the current account can
be opened
● There is no fixed number of times that money can either be deposited or withdrawn from
such accounts
● Internet banking is available
● This type of bank account does not have any fixed maturity
● Overdraft facility is available for current bank accounts
● There is no interest that is paid on such accounts

Recurring Deposit Account

Recurring Deposit account or RD account is a form of account wherein the account holder needs to
deposit a fixed amount every month until it reaches the fixed maturity date.

The features of the Recurring deposit account have been discussed below:
● Any individual or an Institution can open a recurring deposit account either separately or
jointly
● Periodic or monthly installments that need to be added can be as low as Rs.50/- or may vary
from bank to bank
● The range of months for which an RD account can be opened varies from 6 months to 120
months
● The interest rate varies depending upon the bank you choose to open an account with
● Nomination facility is also available for RC accounts
● Passbook is issued for this type of bank account
● Premature withdrawal of the amount is permitted, provided a sum of amount is deducted as
penalty

Fixed Deposit Account

FD or a fixed deposit account is another type of bank account that can be opened in any Public or
Private sector bank.

The list of important things that need to be known with respect to the fixed deposit account has
been mentioned below:
● It is a one time deposit and one time take away account. Under this type of account, the
account holder needs to deposit a fixed amount of sum (as per their wish) for a fixed time
period
● The amount deposited in FD account can only be withdrawn all at once and not in
installments
● Banks pay interest on the fixed deposit account
● The rate of interest depends upon the amount you deposit and for the time duration of the
FD
● Full repayment of the amount is available before the maturity date of FD

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DEMAT Account
Shares and securities which can be held in electronic format constitute the DEMAT account. The
DEMAT account also stands for Dematerialized Account.

Given below the points that need to be known by a candidate regarding the DEMAT Account:
● There are only two depository organizations which manage this type of bank account in
India. This includes: National Securities Depository Limited and Central Depository Services
Limited
● This helps facilitate easy trade of bonds and shares
● Helps in conducting stress-free transaction of shares
● KYC is required for opening the DEMAT Account
● Transaction cost is reduced
● Traders can work from anywhere
● The transfer of securities can be done with reduced paperwork

NRI Account
To fulfill the bank requirements of a Non-Residential Indian or a Person of India Origin, the option of
NRI account is available.

The NRI Accounts are further divided into three types:

● NRO (Non-Resident Ordinary Rupees) Account – This shall allow you to transfer your
foreign earnings easily to India. It can be opened in the form of an FD/RD/Current/Savings
account. These accounts can be opened by an individual or jointly opened
● NRE (Non-Resident External Rupees) Account – When an Indian citizen moves abroad to
work there, his/her account needs to be converted into an NRE account. This account can be
jointly opened with an Indian resident
● FCNR (Foreign Currency Non-Resident ) Account – This type of account can be opened to
manage an international currency. It can only be in the form of Term deposit and can be
withdrawn after the maturity period only.

Importance of Bank Accounts:

To help manage the finances here are some excellent reason to have a bank account-
● Bank accounts offer simplicity for
transactions. one can easily withdraw money
and make payments if they have a bank
account.
● Having bank accounts offers a safe treasury
of your hard-earned money and even if the
bank or the unions are close you are sure to
get back your money.
● Most banks and financial institutions offer the account holders free or low-cost services,
hence bank accounts are cheaper.
● It is an easy way to grow money. Most banks offer an interest rate when you put your
money in a savings account. The interest will help your money grow over time.

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● It offers easy access to credits. Having a bank account is favorable as banks provide the
facility to access credits to its customers for Personal loan, home loan, education loan etc.

3.2 KYC Importance; Bank Transactions; ATM Types; About PMJDY

KYC Importance:
The full form of KYC is Know Your Customer. KYC is the method of a company that verifies the
customer’s identity and assesses possible risks to the business relationship from criminal intentions.
The name is also used to relate to the regulations on banks and anti-money laundering regulations
that govern such activities. The Reserve Bank of India (RBI) adopted the KYC process to avoid
financial fraud, such as identity theft, money laundering and illegal transactions.

Objective of KYC: KYC guidelines help prevent banks from using criminal networks, intentionally or
involuntarily, for money laundering activities. Also, KYC helps the banks to communicate with clients
and financial transactions. That helps them to handle their risks carefully. Today KYC can be
implemented not only by the banks but also by different online companies.

RBI has recommended banks to

implement the KYC process during
account opening. It protects the
clients from scammers who can
make fraudulent activity using their
name, address and forged signs.
Therefore, customers of banks and
other financial institutions must
provide authentic information so
that banks can recognise and
improve customer satisfaction.

Here is a required document serving as identification evidence and address proof

● Passport
● Voter ID card
● Driving License
● PAN card
● Aadhaar Card

If the document you provide for identity proof does not contain details of the address, you can send
another legally valid document containing details of the address such as electricity bill, telephone
bill, gas bill, etc.

What Is The Importance OF KYC?

KYC is essential because it helps the banker to make sure the request and other details are real.
There were instances of theft and the siphoning off of accounts funds. It will help deter fraud by
maintaining the identity of the individuals. The Know The Consumer approach has been in vogue for

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several years now. That is a must and all individuals must obey if they decide to open the account. It
isn’t easy to open a bank account, or mutual funds account without KYC compliance.

Who Needs KYC?

KYC is a mandatory practice for financial institutions and other related businesses. Companies must
comply with the regulations or may face fines or penalties from authorities. The following are some
examples of enterprises which need to incorporate KYC
● Real estate business
● Banks and their respective subsidiaries
● E-commerce
● Dealers of precious metals
● Insurance companies
● Casinos and online gaming
● Virtual currency businesses

Bank Transactions:
The full form of KYC is Know Your Customer. KYC is the method of a company that verifies the
customer’s identity and assesses possible risks to the business relationship from criminal intentions.
The name is also used to relate to the
regulations on banks and anti-money
laundering regulations that govern such
activities. The Reserve Bank of India (RBI)
adopted the KYC process to avoid
financial fraud, such as identity theft,
money laundering and illegal
transactions.

The introduction of various payment

systems in India has made it easier to
transfer money. Unlike earlier, you can
transfer money from one bank account to another almost immediately. Due to various payment
options that are available, money can be sent and received from anywhere at any given time.

Different Methods to Transfer Fund Online

The three different methods by which money can be transferred online are mentioned below:
● Immediate Payment Service (IMPS)
● National Electronic Funds Transfer (NEFT)
● Real-Time Gross Settlement (RTGS).

✔ IMPS: The transfer of funds is completed immediately via IMPS. You can transfer money
24x7 by using this method. IMPS can be completed by using internet banking or mobile
banking. Various digital banks in India use IMPS services to transfer money. Depending on
the bank, the transaction charges may vary.

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✔ NEFT: Under NEFT, you can transfer funds from one bank branch to another bank branch
that is participating under the scheme. However, NEFT transactions take longer when
compared to IMPS.

✔ RTGS: Another payment mode that occurs in real-time and on a gross basis is RTGS. RTGS is
mainly used for higher value transfers that require immediate clearance. RTGS transactions
can be completed only during hours.

Important Things to Consider Before Initiating a Fund Transfer

● Timings: Depending on the bank, the timings for each transfer will vary. In the case of RTGS,
depending on the bank and the location, the operating hours will vary. IMPS and NEFT
payment modes are available 24x7.
● Transaction Fee: A separate fee is levied for the transfer of money. However, in case you are
receiving the money, no fee is levied.
● GST: As per the latest norms, GST will be applicable on the transaction fee.
● Network: Both the banks must be part of the scheme for the transfer to take place.

Important Terms
Given below are some of the important things to know when using the different methods to transfer
money:
● Fund Transfer Charges: Any transfer of money will involve certain charges. According to the
RBI, the banks decide the charges that are levied for different fund transfers.
● Fund Settlement Speed: Depending on the type of transfer, the fund settlement speed will
be different. The amount of time that is required to transfer money from one bank account
to another bank account is the fund settlement speed.
● Service Availability: Depending on the type of transfer, the timings will vary. IMPS and NEFT
are available 24x7, while RTGS operates only during banking hours.
● Fund Transfer Limit: The amount of money that can be transferred is the fund transfer limit.
The limit will be different for different payment methods.

UPI (Unified Payments Interface):

The Unified Payment Interface abbreviated as UPI
is another real-time payment system that
facilitates transactions through VPA (Virtual
Payment Address).

Banking cards:
One of the most used payment methods that come with several features and benefits, such as
security of payments, convenience, etc., are the banking cards.

An alternative advantage of these cards is that you

can use them to make various kinds of digital

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payments, PoS machines, etc. For instance, customers can store their card information on the digital
wallet and make cashless payments. Some of the well-known card payment systems are VISA,
MasterCard, and Rupay.

AEPS:
The full form of AEPS is Aadhaar Enabled Payment
System. It can be used for all banking transactions,
such as cash withdrawal, payment transactions,
Aadhaar to Aadhar fund transfers, balance inquiry,
etc.

PoS terminals:
Conventionally, referred to those hand-held devices (credit/debit card readers) that are installed at
all physical stores.

There are various kinds of PoS terminals like

Physical PoS, Mobile PoS, and Virtual PoS.
Physical PoS are available at shops and retail
outlets, whereas mobile PoS terminals work via
a tablet or smartphone. This is beneficial for
small-time business owners as they can’t invest
in expensive registers. Lastly, there are Virtual
PoS systems that use web-based applications to
process payments.

Cheque:
With the help of a check,
anyone can transfer
money from one account
to another account. What
you need to do is draw a
cheque stating the payee
as your name along with
the account number
where you have to
transfer the amount and
your signature just below
the numeric amount.

Demand Drafts:
When one person wants to send or transfer money to another person who is in another town/city.
Then the person who wants to transfer the amount can deposit cash in the bank or issue a check in
favor of the issuing bank, which will issue him a demand draft.

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The person who

wants to receive the
amount receives the
demand draft, and
then he gives it to the
bank/branch where
he/she has his savings
account and receives
the payment. But
remember, banks
usually charge a commission for issuing demand drafts.

Banker’s Cheque or Payment Order:

Banker’s Cheque or Payment Order is just like demand drafts that are issued to send and receive
payments within the city. These are only valid for a very short duration, and banks may charge a
commission for issuing them.

ATM Types:
ATM is Automated teller machine which is a computerized machine which provides the customers of
banks the facility of accessing their account for dispensing cash and to carry out other financial &
non-financial transactions without the need to actually visit their bank branch.

Types of Cards Used in ATM

The ATM cum debit cards, credit cards and open prepaid cards (that permit cash withdrawal) issued
by banks can be used at ATM for various transactions.

Types of ATM in India

✔ Onsite ATM: These ATMs are inside the bank compound and hence are known as Onsite
ATMs.

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✔ Offsite ATMs: These ATMs are located in various places except inside the bank premises and
thus named as Offsite ATMs.
✔ Worksite ATM - Those ATMs which are located within the premises of a company and are
usually meant only for that company’s employees.
✔ Cash Dispenser - ATM that allows only cash withdrawals, balance enquiry and mini
statements.
✔ Mobile ATM - This type of ATM is a machine that moves in different areas for the users.
COVID 19 has led to a surge in the number of Mobile ATMs.
✔ White Label ATM: These ATMs are set up & owned by Non-Banking Financial Companies
and offer all the services known as White Label ATMs.
✔ Yellow Label ATM: These ATMs are mainly installed to provide for E-Commerce facilities.
✔ Brown Label ATM: These ATMs are not owned by the bank instead they are taken on lease
to provide the service to the customer.
✔ Orange Label ATM: These ATMs are used in the share transaction.
✔ Pink Label ATM: These ATMs are meant only for Women.
✔ Green Label ATM: These ATMs are installed for the transaction related to agriculture.

Debit Cards Vs. Credit Cards: A Comparison Between the Two

Parameters Debit Card Credit Card

Definition Deduct money directly from Allows you to borrow funds to pay for
your saving’s bank account or goods and services.
your current account.

Source of Your savings bank account or Credit extended to you by your card
funds current account. issuer. It gives you access to money
you otherwise do not have (like a very
short-term loan).
Spending You can only spend how much Can spend more than what you have.
advantage you have.

Who pays You pay for your purchase. The credit card company pays the
for the vendor for your purchase. You pay the
purchase credit card company.

Bill There is no bill or statement You get a bill or statement each month
with details of the transactions you
have made.

Payment There is no payment that A bill needs to be paid each month

needs to be made since you since it is being borrowed.
are using your own money.

Fees and Annual fees and PIN Credit cards have multiple fees
charges regeneration fees are applicable. These include joining fees,
applicable. annual fees, late payment fees, and
bounced cheque fees among others.
Interest There is no interest that is Interest is charged on the outstanding
charged. amount if it hasn’t been paid by the
due date.

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Limit to You can access any amount You can use the card only up to the
funds that up to what is currently pre-set credit limit on your card.
can be available in your savings bank
accessed or current account.
Rewards Typically, the rewards you get Get to enjoy cashback, air miles,
are minimal and reward points which can be
redeemed.

Privileges Doesn’t come with many Come with numerous dining, retail,
privileges. entertainment, and travel privileges
(depending on the type of card you
have).
Lost card Protection from theft or loss of Most cards offer 100% lost liability
liability the card is minimal. protection. So, you are not liable for
any unauthorized transactions made.

The benefits of an ATM card are as follows:

● ATM Machines are conveniently located at multiple locations. Customers visit the ATM of
any bank to perform any transaction.
● It helps in withdrawing the cash in a matter
of minutes and thus saves time.
● The process of getting an ATM card is
hassle-free, and no documentation is
required for an ATM card. Almost all banks
provide ATM cards at the time of account
opening.
● It helps in getting the details of the
transactions, total balance and mini
statement.
● Some ATM Machines also provide the
facility of depositing cash and fund transfer.
● ATMs are also used in paying utility bills
and several other bills and payments.
● ATM Machine is available 24*7, 365 days a
year.
● An ATM is safe and secure as the use of an
ATM is restricted only to the person who
knows the PIN. Thus, if the customers keep
the PIN confidential, no one other than the
customer can use the ATM.
● ATM Machines are self-service and thus reduces the workload of the bank staff.
● ATM reduces the requirement for carrying cash as individuals can withdraw at any ATMs,
which acts as a cashpoint.

Pradhan Mantri Jan Dhan Yojana (PMJDY):

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Pradhan Mantri Jan-Dhan Yojana is a government

scheme launched by the government of India to
provide easy access to financial services such as
Remittance, Credit, Insurance, Pension, Savings and
Deposit Accounts to poor and needy sections of our
society.

The Indian Government launched the Pradhan Mantri Jan Dhan Yojana (PMJDY) in order to provide
financial services and products to individuals who do not have access to a bank account.
● No minimum balance to be maintained
● As per bank’s saving’s account interest rate
● Transfer of money is simple
● Overdraft facility available

How to open a Jan Dhan Yojana Account?

To open a Jan Dhan Yojana Account, you need to get the application form that is available in both
English and Hindi and is available on the official website of PMJDY
(https://www.pmjdy.gov.in/scheme). Fill it up and submit it along with the necessary documents.
The application form is called the financial inclusion account opening form. It consists of three
sections where you need to provide details of yourself, nominee and the bank where the account is
being opened.

PMJDY Eligibility
In order for individuals to open a PMJDY account, the below given criteria must be met:
● You must be citizen of India
● You should be at least 10 years of age
● You should not have a bank account

Documents required to open PMJDY account

In case individuals wish to open an account, viable documents must be submitted. The list of
documents required for PMJDY account under the scheme are mentioned below:
● Passport
● Permanent Account Number (PAN) Card
● Aadhaar
● The National Rural Employment Guarantee Act (NREGA) issued job cards.
● Driving license
● Voter ID
● Identity card with photo which has been issued by the central or state government
departments, public sector undertakings, scheduled commercial banks, public financial
institutions and statutory or regulatory authorities.
● A photograph which has been attested along with a letter from a Gazetted officer must be
submitted.

Rate of interest under PMJDY

Based on the savings account interest rate offered by the bank.

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Benefits of the PMJDY scheme

Given below are the main benefits of PMJDY scheme:
● Interest is offered on the deposits that are made towards the savings account opened under
the scheme.
● Individuals need not maintain a minimum balance under the scheme. However, in case they
wish to avail cheque facilities, a minimum balance must be maintained.
● In case individuals maintain the account in a good manner for 6 months, an overdraft facility
is provided.
● Individuals receive Accidental Insurance cover of Rs.1 lakh under the RuPay scheme.
● In case the account was opened between 20 August 2014 and 31 January 2015, life cover of
Rs.30,000 is provided in case the beneficiary passes away.
● Under the scheme, insurance products and pension access are provided.
● In case individuals are beneficiaries of government schemes, Direct Benefit Transfer option
is provided.
● An overdraft facility of Rs.5,000 is provided to one account in the household. The facility is
usually provided to the lady in the house.
● The Personal Accident cover can be claimed only after the RuPay Card holder has made a
successful non-financial or financial transaction. Transactions made within 90 days of the
accident are considered to be PMJDY eligible transactions under the scheme. However, the
transaction must be made at an E-COM, POS, ATM, Bank Mitra, bank branch, etc.
● Account holders can check their balance using the mobile banking facility.

3.3 Cashless Banking: POS Machine; BHIM; PayTM; UPI; USSD and e-RUPI
Cashless Banking:
A cashless society describes an economic
state whereby financial transactions are
not conducted with money in the form of
physical banknotes or coins, but rather
through the transfer of digital information
(usually an electronic representation of
money) between the transacting parties.
Cashless societies have existed from the
time when human society came into
existence, based on barter and other
methods of exchange, and cashless
transactions have also become possible in modern times using credit cards, debit cards, mobile
payments, and digital currencies such as bitcoin.

● Benefits
o Lower crime rates, because there's no tangible money to steal
o Less money laundering, because there's always a digital paper trail
o Less time and cost associated with handling, storing, and depositing paper money
o Easier currency exchange while traveling internationally
● Disadvantages

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o Exposes your personal information to a possible data breach

o If hackers drain your bank account, or you experience technical issues, you'll have no
alternative source of money.
o Those with no knowledge, bank accounts, or mobile phones will struggle to keep up with
evolving cashless technology.
o Some may find it harder to control spending when they don't see physical cash leaving
their hands

Mastercard in October 2016 along with MS Dhoni launched Team Cashless India as an initiative and
aimed at empowering the citizens of India into embracing digital payments that are safe, secure
anytime, everywhere.

Demonetization: On November 8, 2016, India went through demonetization by abolishing high-

value currency overnight– a move that gave an unanticipated fillip to a cashless Indian economy.

In 2023, Sweden is proudly becoming the first cashless nation in the world, with an economy that
goes 100 percent digital. Currently, about 80 percent of Swedes use cards with 58 percent of
payments being made by card and only 6 percent made in cash, according to the Swedish Central
Bank.

For many citizens living in rural areas, cash is still the bedrock of daily existence because of a lack of
facilities. Indian Prime Minister Narendra Modi backed a shock ruling in November 2016 to outlaw
86% of cash in circulation to target undeclared “black money” and fight corruption.

Modes of Digital Payments

● BHIM
● BHIM Aadhaar
● BHARAT QR CODE
● IMPS
● Cards
● USSD

BHIM
Bharat Interface for Money (BHIM) is a mobile app for easy and quick payment transactions using
Unified Payments Interface (UPI). Users can make instant bank-to-bank payments and Pay and
collect money using Mobile number, Bank a/c and IFSC code, Aadhaar number or Virtual Payment
Address (VPA). BHIM has the facility to scan & pay through QR code. Users can check transaction
history and can also raise complaints for the declined transactions by clicking on Report issue in
transactions. BHIM is available in 8 regional languages (Tamil, Telugu, Bengali, Malayalam, Oriya,
Gujarati, Kannada, and Hindi) for better user experience. Users can also make transaction using from
their feature phone as well by dialing *99#.

BHIM Aadhaar
Bhim Aadhaar App was launched by our Hon’ble Prime Minister on April 14th this year. This Mobile
base App would enable merchants to receive payments without installing any physical POS machine.

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Customers can make payment by using his biometric thumb impression, Aadhaar number.
Customers need not use any card or OTP to make the payment. With BHIM Aadhaar Govt. has
ensured that any citizen of this country can make payment digitally without usage of cards, internet,
smart phone.

BHARAT QR CODE
Bharat QR code is an interoperable payment acceptance solution that supports Visa, MasterCard.
Amex and RuPay cards & BHIM-UPI for wider acceptance. Bharat QR code will enable rapid rollout of
digital payments acceptance infrastructure throughout the country, as it does not involve any
upfront investment in Point of Sale (PoS) machines.

To facilitate massive rollout in a short span of time, Bharat QR code based payment solution is
introduced with following advantages:
● Bharat QR code does not require any upfront expenditure.
● Bharat QR code is a single unified QR code capable of accepting payments from Visa,
MasterCard, RuPay Cards for wider acceptance.
● Customers can easily make payments through Bharat QR code and do not require to carry a
physical Debit or Credit card.
● The risk of data theft or security issues through tampered or cyber-compromised point of
sale devices is minimized.
● Bharat QR code supports dynamic QR codes, which may be printed on electricity bills, gas
bills and other utility bills to make payments to the respective vendors.
● Merchants accepting the payment through Bharat QR code, receive the amount directly in
their Bank accounts.

IMPS
Immediate Payment service enabled a user to send money 24*7 using mobile number, Aadhaar
number and Bank a/c, IFSC Code. IMPS service can be accessed using internet banking, mobile
banking and ATM.

A person can make payments using the following options:

● Using Mobile number & MMID (P2P)
● Using Account number & IFSC Code (P2A)
● Using Aadhaar number (ABRS)

Using Mobile number & MMID (P2P): IMPS offer an instant, 24*7 interbank electronic fund transfer
service capable of processing person to person, person to account and person to merchant
remittances via Mobile, Internet and ATM. It is a multichannel and multidimensional platform that
makes payments possible within a fraction of seconds with all the standards and integrity
maintained for security required for even high worth transactions.

Using Account number & IFSC Code (P2A): Presently, IMPS Person-to-Person (P2P) funds transfer
requires the Remitter customer to make funds transfer using Beneficiary Mobile Number and MMID.
Both Remitter as well as Beneficiary need to register their mobile number with their respective bank
account and get MMID, in order to send or receive funds using IMPS.

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In ABRS, a remitter can initiate an IMPS transaction using the beneficiary's AADHAAR number, which
acts as a financial address & which will be linked to the beneficiary's account number. ABRS
facilitates in simplifying the IMPS payment initiation process as in this service the customer will have
to input only the AADHAAR number of the beneficiary for initiating an IMPS transaction. Another
important utility of this service will be in disbursal of subsidy payment i.e. Electronic Benefit Transfer
(EBT)/ Direct Benefit transfer (DBT) by the Government. ABRS will act as a catalyst in expanding
financial Inclusion reach.

Cards
RuPay debit cards have been launched by the Government to enable all users to make payments
digitally. PMJDY account holders have been issued RuPay debit cards which can be used at POS
devices or online for making e-commerce purchases.

USSD
One of the innovative payment services launched by Government, includes *99# service, which
works on Unstructured Supplementary Service Data (USSD) channel. This service was launched
envisioning the potential of Mobile Banking and the need for immediate low value remittances
which will help in financial deepening and inclusion of underbanked society in the mainstream
banking services. *99# the service was dedicated to the nation by the Honorable Prime Minister of
India, Shri Narendra Modi.

*99# service has been launched to take the banking services to every common man across the
country. Banking customers can avail this service by dialing *99#, a “Common number across all
Telecom Service Providers (TSPs)” on their mobile phone and transact through an interactive menu
displayed on the mobile screen.

Key services offered under *99# service include:

● Interbank account to account fund transfer
● Balance enquiry
● mini statement besides host of other services

*99# service is currently offered by almost all leading banks & all GSM service providers and can be
accessed in 12 different languages including Hindi & English. *99# service is a unique interoperable
direct to consumer service that brings together the diverse ecosystem partners such as Banks &
TSPs.

It is a common technology platform which allows the Banks and TSPs to seamlessly integrate with
each other to provide banking services to the customers at large over the mobile phones.

PayTM:
Paytm is the leading digital wallet solution provider of the country. Along with providing a digital
wallet, it offers other financial services as well, like banking and investment. Paytm also provides e-
commerce services to its users along with other financial solutions like credit score, transfer of funds
to a bank account, payments to merchants, etc.

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Paytm is founded by Vijay Shekhar Sharma and it is the flagship brand of One97 Communications
Limited. Some of its notable investors are Berkshire Hathaway, SAIF Partners, Discovery Capital,
SoftBank and Ant Financial.
One97 Communications Limited is headquartered in Noida. The users
of Paytm can use BHIM UPI on the Paytm app by linking their bank
account with the UPI.

You can use Paytm for various services such as, sending and receiving
money, purchase of various products, paying utility bills, mobile and
digital tv recharge, getting insurance, making an investment or
opening an account in the Paytm Payments Bank which is the
country's largest digital bank.

The features of Paytm App are as following:

● You can make payment to merchants through their mobile number, scanning OR code or
using the e-commerce platform of Paytm.
● You can send and receive payments 24X7.You can recharge your Paytm wallet through credit
card, debit card, net banking and UPI ID as well.
● Through the Paytm app, you can easily do various other transactions like mobile recharge,
DTH recharge, bill payment of utilities like electricity and water.
● You can make an investment in SIP through Paytm.
● You can also buy movie tickets along with
booking train and flight tickets as well.
● It also offers an e-commerce platform from
which you can buy various products as per
your need.
● Paytm also offers various games for your
entertainment as well. Some of them give you
the chance to earn as well.

e-RUPI:
e-RUPI is a prepaid e-voucher, which is developed by the NPCI (National Payments Corporation of
India) in association with Department of Financial Services (DFS), National Health Authority (NHA),
Ministry of Health and Family Welfare (MoHFW),
and partner banks. e-RUPI is definitely a good step
to promote digital payments in a country like
India.

The users of this seamless one-time payment

mechanism are going to be ready to redeem the
voucher without a card, digital payments app or
internet banking access, at the merchants accepting e-RUPI. e-RUPI would be shared with the
beneficiaries for a selected purpose or activity by organizations or Government via SMS or QR code.

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The beneficiary can directly take the benefits of the government schemes with the help of this
without involving any intermediary in between (as directed by the government).

Benefits of e-RUPI
The main benefits of e-RUPI are:
1. This is a cashless and contactless method.
2. It directly connects the service provider and the receiver.
3. The scheme provided by the government will go directly to the beneficiary account. This will
reduce corruption.
4. It can be sent directly to the user mobile number as it is an SMS or QR based service.
5. This will help the users to redeem vouchers without any card, digital payment app or
internet banking facility.
6. Through e-RUPI, the departments or institutions related to government schemes will be
directly connected with the beneficiaries and service providers without any physical contact.
7. It will also ensure that payment is made to the service provider only after the transaction is
completed.
8. No intermediary gets in between the transaction as it is a prepaid service.
9. In the case of the private sector these vouchers can also be used for the welfare of the
employees and the social responsibility programme of the corporate.

3.4 Loan and Repayment Method; CIBIL & CRA

CIBIL
Credit Information Bureau (India) Limited (CIBIL) is a credit bureau or credit information company,
engaged in maintaining the records of all the credit-related activities of companies as well as
individuals, including credit cards and loans.

The registered member banks and several other financial institutions periodically submit their
information to CIBIL. Based on the information and records provided by these institutions, CIBIL
issues Credit Information Report (CIR) and credit score to applicants and financial institutions.

Credit Rating Agency

A credit rating agency (CRA) evaluates and assesses an individual’s or a company’s creditworthiness.
That is, these agencies consider a debtor’s income and credit lines to analyze the debtor’s ability to
repay the debt or if there is any credit risk associated.

All the credit rating agencies in India are regulated by SEBI (Credit Rating Agencies) Regulations,
1999 of the Securities and Exchange Board of India Act, 1992. There are a total of seven credit
agencies in India viz, CRISIL, CARE, ICRA, SMREA, Brickwork Rating, India Rating and Research Pvt. Ltd
and Infomerics Valuation and Rating Private Limited.

Credit Rating and Information Services of India Limited (CRISIL)

● It is India’s first credit rating agency which was incorporated and promoted by the erstwhile
ICICI Ltd, along with UTI and other financial institutions in 1987.
● After 1 year, i.e. in 1988 it commenced its operations.
● It has its head office in Mumbai.

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● It is India’s foremost provider of ratings, data and research, analytics and solutions, with a
strong track record of growth and innovation.
● It delivers independent opinions and efficient solutions.
● CRISIL’s businesses operate from 8 countries including USA, Argentina, Poland, UK, India,
China, Hong Kong and Singapore.
● CRISIL’s majority shareholder is Standard & Poor’s.
● It also works with governments and policy-makers in India and other emerging markets in
the infrastructure domain.

Investment Information and Credit rating agency (ICRA)

● The second credit rating agency incorporated in India was ICRA in 1991.
● It was set up by leading financial/investment institutions, commercial banks and financial
services companies as an independent and professional investment Information and Credit
Rating Agency.
● It is a public limited company.
● It has its head office in New Delhi.
● ICRA’s majority shareholder is Moody’s.

Credit Analysis & Research Ltd. (CARE)

● The next credit rating agency to be set up was CARE in 1993.
● It is the second-largest credit rating agency in India.
● It has its head office in Mumbai.
● CARE Ratings is one of the 5 partners of an international rating agency called ARC Ratings.

ONICRA
● It is a private sector agency set up by Onida Finance.
● It has its head office in Gurgaon.
● It provides ratings, risk assessment and analytical solutions to Individuals, MSMEs and
Corporates.
● It is one of only 7 agencies licensed by NSIC (National Small Industries Corporation) to rate
SMEs.
● They have Pan India Presence with offices over 125 locations.

CIBIL is a credit information database and does partake in any kind of lending decisions. It
provides data to the banks and other lenders to quickly and efficiently filter the loan
applications which they receive in the course of their business.

Product offerings by CIBIL: CIBIL offers three products viz. credit score, a credit report for individuals
and credit report for companies:

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Credit score: A credit score refers to a 3 digit

numeric value that represents the
creditworthiness of an individual. The
creditworthiness ranges between 300 to 900 with
900 being the highest and 300 being the least. This
score is computed with the help of the credit
history of an individual.

Banks and most financial institutions prefer extending credit to an individual whose score is 750 and
more. Individuals with good credit scores are less likely to default on their loan payments.

Credit report: The credit report contains the credit information that CIBIL fetches from various
financial institutions. This detailed report contains information about an individual’s history of
borrowing and repayment routine, including defaults and delays.

The important parts of this report are credit Score, individual’s personal information, employment
details, contact information and account details.

Credit report for companies: Credit report for companies constitutes details about a company’s
credit history. The several segments in a company credit report speak about potential lenders,
existing credit which the company has, any pending lawsuits and outstanding amounts.

A good credit report is essential for approval of any loans, whereas a bad report could
damage/reduce the chances of the loan being granted to the company.

Factors influencing a CIBIL score:

● Repayment History: Your CIBIL score would tell the loan
providers if you are capable of dealing with the debt
burden and whether you can repay the loan obligation. A
repayment history with EMI defaults or late payments
could negatively affect your credit score.
● Credit Utilization Ratio: This is another key factor that
could impact your CIBIL score. Credit utilization ratio refers to the total amount of credit that
you use against the total amount of credit that you’ve been authorized.
Financial experts suggest that individuals should try to keep the credit utilization
ratio in the range of 25-30 % for maintaining a good CIBIL score report.
● Excess Personal Loans/Credit Cards: Credit cards and personal loans both are unsecured
loans. Too many credit cards and a high amount of personal loans with no secured loans
such as an auto loan or home loan could have a negative impact on your CIBIL score.
So, if you have a balance of both the secured as well as unsecured loans, it might
lead to a positive impact on the CIBIL score.
● New Accounts: An increase in the number of credit cards and loans sanctioned to you imply
a rise in your debt burden. In case numerous credit cards and loans are sanctioned over a
short time period, your credit score would be negatively affected.

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Building and preserving a good CIBIL score isn’t rocket science, however, people tend to mess up
their credit usage which does substantial harm to CIBIL scores. If you’re mindful of your own physical
health and do everything for keeping yourself healthy, maintain a financial discipline and you would
find that your financial health is healthy too.

Loans – Meaning, How They Work, Types, and Features:

We may not always have the money we require to do certain
things or to buy certain things. In such situations, individuals and
businesses/firms/institutions go for the option of borrowing
money from lenders.

When a lender gives money to an individual or entity with a

certain guarantee or based on trust that the recipient will repay the borrowed money with certain
added benefits, such as an interest rate, the process is called lending or taking a loan.

A loan has three components – principal or the borrowed amount, rate of interest and tenure or
duration for which the loan is availed.

Most of us prefer borrowing money from a bank or a trusted non-banking financing company (NBFC)
as they are bound to the government policies and are trustworthy. Lending is one of the primary
financial products of any bank or NBFC (Non-Banking Financial Company) offers.

Types of Loans
● Based on the Security Provided
✔ Secured Loans: These loans require the borrower to pledge collateral for the money
being borrowed. In case the borrower is unable to repay the loan, the bank reserves the
right to utilize the pledged collateral to recover the pending payment. The interest rate
for such loans is much lower as compared to unsecured loans.
✔ Unsecured Loans: Unsecured loans are those that do not require any collateral for loan
disbursement. The bank analyses the past relationship with the borrower, the credit
score, and other factors to determine whether the loan should be given or not. The
interest rate for such loans can be higher as there is no way to recover the loan amount
if the borrower defaults.

● Based on the Purpose

✔ Education Loan: Education loans are financing instruments that aid the borrower pursue
education. The course can either be an undergraduate degree, a postgraduate degree,
or any other diploma/certification course from a reputed institution/university. You
must have the admission pass provided by the institution to get the financing. The
financing is available both for domestic and international courses.
✔ Personal Loan: Whenever there is a liquidity issue, you can go for a personal loan. The
purpose of taking a personal loan can be anything from repaying an old debt, going on
vacation, funding for the downpayment of a house/car, and medical emergency to

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purchasing big-ticket furniture or gadgets. Personal loans are offered based on the
applicant’s past relationship with the lender and credit score.
✔ Vehicle Loan: Vehicle loans finance the purchase of two-wheeler and four-wheeler
vehicles. Further, the four-wheeled vehicle can be a new one or a used one. Based on
the on-road price of the vehicle, the loan amount will be determined by the lender. You
may have to get ready with a downpayment to get the vehicle as the loan rarely
provides 100% financing. The vehicle will be owned by the lender until full repayment is
made.
✔ Home Loan: Home loans are dedicated to receiving funds in order to purchase a
house/flat, construct a house, renovate/repair an existing house, or purchase a plot for
the construction of a house/flats. In this case, the property will be held by the lender
and the ownership will be transferred to the rightful owner upon completion of
repayments.

● Based on the Pledged Assets

✔ Gold Loan: Many financiers and lenders offer cash when the borrower pledges physical
gold, may it be jewelry or gold bars/coins. The lender weighs the gold and calculates the
amount offered based on several checks of purity and other things. The money can be
utilized for any purpose.
The loan must be repaid in monthly installments so the loan can be cleared by the
end of the tenure and the gold can be taken back to custody by the borrower. If the
borrower fails to make the repayments on time, the lender reserves the right to take
over the gold to recover the losses.
✔ Loan Against Assets: Similar to pledging gold, individuals and businesses pledge
property, insurance policies, FD certificates, mutual funds, shares, bonds, and other
assets in order to borrow money. Based on the value of the pledged assets, the lender
will offer a loan with some margin at hand.
The borrower needs to make repayments on time so that he/she can get custody of
the pledged assets at the end of the tenure. Failing to do so, the lender can sell the
assets to recover the defaulted money.

Important Factors Lenders Look at to Approve your Application

● Credit Score: Credit score plays an important role in deciding whether the lender would like
to go ahead with your application or drop it off at the initial stage. This is especially the case
when it comes to unsecured loans.
Since a credit score represents the credit history of the borrower, the lender
analyses the repayment history of the borrower and concludes whether the borrower can
repay on time or will he default on payments. The loan approval is based on the lender’s
judgment after the necessary analysis.

● Income and Employment History: Your monthly or annual income and employment history
plays a crucial role in loan approval as well. Based on your income and income stability in the
form of consistent and stable work history, the lender may or may not get convinced that
you will be able to repay the loan.

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Even if you are self-employed, the lender assumes that your business is running well
for the past few years and your business’s turnover is satisfactory.

● Debt-to-Income Ratio: Not just having a good income, your debt-to-income ratio is also
important. In case you have an income of Rs.1 lakh per month and if your debt repayment
commitments exceed Rs.75,000 already, a new loan will not be provided to you as you will
need the remaining income to take care of your domestic expenses.
Therefore, irrespective of your income, you must have a low debt-to-income ratio so
the lenders can think that you have enough cash at hand every month to make the
repayments as well as handle the family expenses.

● Collateral: Based on the collateral you provide and its current market value, the lender may
decide on the interest rate applicable to your loan. Providing collateral will make the deal
more secure from the lender’s perspective, which may result in more trust and less interest
rate. An unsecured loan is infamous as it includes a higher interest rate comparatively.

● Down Payment: The money you have saved and the effective execution of your saving plan
towards a down payment will increase the lender’s trust in you. The higher the down
payment, the lower is the loan amount requirement.

Features and Benefits of Loans

● There are several types of loans categorized based on various factors.
● You can choose the type of loan you wish to take based on your requirement and eligibility.
● The lender will be the ultimate power to decide the loan amount they wish to offer to you
based on several factors, such as repayment capacity, income, and others.
● A repayment tenure and interest rate will be associated with every loan.
● The bank may apply several fees and charges to every loan.
● Many lenders provide instant loans that take a few minutes to a few hours to get disbursed.
● The interest rate is determined by the lender based on the Reserve Bank of India’s guidance.
● The lender determines the requirement for security.
● A third-party guarantee can be used instead of security in some cases.
● The loan repayments must be made in equated monthly installments over the
predetermined loan tenure.
● There may or may not be the option for full/part prepayment.
● Some loan types and lenders may levy a penalty for prepayment of loans.

Eligibility for Loan

The eligibility criteria to get a loan varies based on the type of loan you are looking for. Generally
speaking, you may consider the following simple criteria to check your eligibility.
● A decent credit score
● Constant income flow
● Age between 23 years and 60 years at the time of entry
● A few assets such as FDs, investments, immovable property, etc.
● A good relationship with your bank
● A timely debt repayment history

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Documents Required
● Salaried Applicants
o Application form with photograph
o Identity and address proof
o Last 6 months’ bank account statement
o Latest Salary Slip
o Form 16
● Self-Employed Applicants
o Application form with photograph
o Identity and address proof
o Last 6 months’ bank account statement
o Proof of business
o Business profile
o Income Tax returns (self and business) for the last three years
o Profit/loss statements and balance sheets of the last three years

Loan EMI Calculator

A Loan EMI Calculator is a handy tool to calculate the monthly amount payable to the lender as well
as the total interest. To calculate the EMI applicable to your loan amount, all you need to do is enter
the values for principal Amount (P), Time duration (N), and Rate of interest (R).

How to Apply for a Loan?

Applying for a bank loan is simpler than one would think. But before you apply for one, you should
be aware of your financial situation, given you will have to pay back the loan amount later.

You must first understand your needs and if you think it’s an ideal way out for you, you can either go
to the bank and talk to the loan manager or steer past all that and apply online.
● Step 1: Choose the lender you would like to borrow from based on your research and check
for your eligibility.
● Step 2: Visit the bank branch or their official website to apply for the loan.
● Step 3: Submit or upload all the necessary documents and proofs.
● Step 4: The bank will process your application and get in touch with you to inform their
stand within the stipulated time frame.

Loan Repayment
Loan repayment is the act of paying back the borrowed money to the lender. The repayment occurs
through a series of scheduled payments, also known as EMIs, which include both principal and
interest.

How Loan Repayment Works?

Loan repayment generally occurs through equated monthly installments (EMIs). These installments
are the amount of money that is repaid to the lender every month. It is made up of two components
– the principal amount and the interest on the principal amount, paid to the bank or lender on a
fixed date each month until the total amount due is paid up over the loan tenure.

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Now, you might assume that the principal and interest components are divided equally in an EMI.
However, that’s not the case. In the initial loan period, the interest component in an EMI is higher.
And in the latter period of the loan tenure, the interest component reduces, and the principal
component gets higher.

Why Is Loan Repayment Important?

Loan Repayment should be taken seriously because not only do they
reduce your loan liability and interest accrued, they are also reflected
in your credit history. The immediate financial implication would be
anywhere from higher interest component (for missed installment
payments) to declaring bankruptcy (in the event of failing to repay
altogether). There is also a long-term implication on your credit health which is reflected on your
credit history.

Types of Loan Repayment Methods

Listed below are some of the loan repayment options; however, the loan repayment option available
to you may depend upon your lender and the type of loan that’s issued:

i. EMIs –Equated Monthly Installments or EMIs, are the most popular loan repayment option.
Every installment involves a part of the principal and a part of the interest, which is scheduled to
be paid every month over a fixed tenure.
That said, some banks allow their borrowers to repay the loan after a certain number of
installments have been made. Some banks may charge a prepayment fee, if you want to prepay
your loan. Pre-payment can be done in two ways:
a. Partial or Part Pre-Payment: This is when you pay off your loan in part, it helps you
reduce the principal. This saves money on interest as the interest is applied on the new
reduced principal.
b. Full Prepayment or Pre-Closure: This is when you completely pay off your loan before
the loan tenure.
ii. Bullet Repayment – Some loan products may allow you to repay the loan through bullet loan
repayment method. In this option, you need to pay only the interest component every month.
When the loan tenure ends, you need to make one bullet repayment that pays off the entire
principal loan.

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List of Public Sector Banks MD and CEO:

Bank Tagline Headquarter CEO/MD/Chairman

Bank of India’s Vadodara Mr. Sanjeev Chadha, (SL Jain
Baroda International Bank “September 1, 2021”)

Bank of India Relationship Mumbai Shri Atanu Kumar Das

Beyond Banking

Bank of One Family One Pune Shri A.S Rajeev

Maharashtra Bank

Canara Bank Together we can Bangalore L.V Prabhakar

Central Bank Central to you Mumbai Shri Tapan Roy (Non-Executive

Of India since 1911 Chairman)

Indian Bank Your Own Bank, Chennai Mr, Padmaja Chunduru

Banking That’s
Twice As Good

Indian Good People to Chennai Partha Pratim Sengupta

Overseas Grow With
Bank
Punjab The Name you can New Delhi CH. SS Mallikarjuna Rao
National Bank Bank Upon

Punjab & Sind where service is a New Delhi S Krishnan

Bank way of life

State Bank of Suraksha Aur Mumbai Shri Dinesh Kumar Khara

India Bharosa Dono

UCO Bank Honors Your Trust Kolkata Shri Atul Kumar Goel

Union Bank Of Good People to Mumbai Shri Rajkiran Rai G

India Bank

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List of Private Sector Banks MD and CEO:

Bank Headquart Tagline MD/CEO/Chairman

er
Axis Bank Mumbai Badhti Ka Naam Zindagi Dr. Sanjeev Misra (NEC),
Amitabh Chaudhry (MD &
CEO)

Bandhan Bank Kolkata Aapka Bhala, Sabki Bhalai Chandra Shekhar Ghosh
(MD & Chairman)
Catholic Syrian Tamilnadu Support all the way T. S. Anantharaman
Bank (Chairman)C. VR.
Rajendran (MD & CEO)
City Union Bank Thrissur Trust and Excellence since Dr. N. Kamakodi (MD &
1904 CEO)
D.C.B Bank Singapur, We Value You Mr. Murali M. Natrajan
Mumbai (MD & CEO)
Dhanlaxmi Thrissur, Tann. Mann. Dhan Jayaram Nagar (Non-
Bank Kerala Executive Chairman)G.
Sreeram (MD & CEO)
Federal Bank Kerala Your perfect banking Shyam Srinivasan (MD &
partner CEO)
HDFC Bank Mumbai We understand your world Aditya Puri (MD),
Sashidhar Jagdishan
(CEO)
ICICI Bank Mumbai Khayaal Aapka M. K. Sharma (Chairman),
Sandeep Bakhshi (MD &
CEO)
IDFC Bank Mumbai Banking Hatke Sunil Kakar (MD & CEO)
Indusind Bank Mumbai We make money simple R Seshasayee
(Chairman)Romesh Sobti
(MD & CEO)
Jammu & Srinagar Serving to Empower Parvez Ahmed (Chairman
Kashmir Bank & CEO)

Karnataka Bank Mangalore Your family bank across P. Jayarama Bhat (Non-
India Executive
Chairman)Mahabaleshwa
ra M. S (MD & CEO)
Karur Vysya Tamilnadu Smart way to bank P. R. Seshadri (MD & CEO)
Bank
Kotak Mahindra Mumbai Let’s make money simple Dr. Shankar Acharya
Bank (Non-Executive
Chairman)Uday Kotak
(MD & CEO)
Nainital Bank Nainital Banking with personal Mukesh Sharma
touch (Chairman & CEO)
RBL Bank Maharashtra Apno ka Bank Vishwavir Ahuja (MD &
CEO
South Indian Kerala Experience next generation Salim Gangadharan (Non-
Bank banking Executive Chairman VG.
Mathew (MD & CEO)
Tamilnad Tamilnadu Thiru K.V. Rama Moorthy
Mercantile Bank (MD & CEO)

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Yes Bank Mumbai Experience our expertise Sunil Mehta

(Chairman), Kumar (MD
& CEO)

IDBI Bank Bank Aisa Mumbai Mr M.R Kumar (CH), Mr.

Dost Jaisa Rakesh Kumar (MD &
CEO)

List of Payment Banks MD and CEO:

Bank Headquarte Tagline MD/CEO/Chairman

r
Airtel Payment New Delhi Banking is Now At Anubatra Priswas
Bank your Fingertips

Fino Payment Mumbai Qradar Apke Rishi Gupta

Bank Mehnat Ki

India Post New Delhi Aaka Bank Apke Suresh Sethi

Payment Bank Dwar

Jio Payment India ka Naya Bank Vivek Bhandari

Bank

PayTm Payment Noida U.P Simplifying Satish Kumar Gupta (MD

Bank Payment of India & CEO), Vijay Shekhar
Sharma (CH)

NSDL Payment Mumbai, Technology Trust SP Narayanan

Bank Maharstra and Reach

Notes

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Exercise (C3)
1) What are the services provided by banks in India?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

2) What is a bank and types of banks?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

3) What is a CIBIL score in India?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

4) What are the benefits of PMJDY?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

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Chapter 4: Insurance and Social Security Schemes

Unit Objectives
At the end of this unit, you will be able to understand:

1. Insurance: Types of insurance plans available in the market. They will also be taught how
to manage their risks via insurances. How to make claims.
2. Social Security Schemes: PMJJBY; PMSBY; APY

4.1 Insurance: Types of insurance, Managing risks & claim

Life is full of various types of risks because of uncertainties. These situations might give rise to
unexpected financial needs. In case one is not prepared, this might lead to a big hole in the pocket or
create roadblocks in meeting the
financial goals of life. However, to
overcome such problems and manage
the financial risks of life, you can opt
for insurance, which can be classified
under different heads.

Insurance provides protection in the

form of financial compensation for
specified loss, damage, illness or
death. To get this coverage, you need
to pay a certain amount of money to the insurance company which is called a premium. In simple
terms, an insurance is a promise of providing for the uncalled expenses during emergency situations
for you and your family. An insurance is of various types and can help in meeting unexpected health
expenses, children’s education or marriage expenses, creating a corpus for retirement or for other
financial requirements.

How Insurance Works?

Before buying an insurance cover, be it of any type, it is imperative to understand its functioning. In
insurance, a policyholder or the insured pays the premium to the insurance company which agrees
to pay the money or sum assured to manage the risks arising out of various situations of life. The
insurance policy is taken for a certain duration of time, also called the policy term. This is the basic
idea behind insurance, but different types of insurance function differently. However, not all
situations are covered by insurance. These are called exclusions. There are different sets of
exclusions for different types of insurance.

What is Insurance Premium?

A premium is the money paid by the policyholder to the insurance company for getting an insurance
policy. The premium is an important aspect to be considered before finalizing a policy. Various
factors like age and gender, lifestyle, duration of the plan, sum assured or insured play a role in
deciding the premium amount. To reap the benefits of an insurance policy, it is important to make
timely payment of the premium. In case of a non-payment or a payment delay, the policy can lapse.

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However, before a policy

happens to expire, you
usually get a grace period
of 30 days to make the
payment. The payment
mode can be regular or
single. A regular payment
can be monthly, annually
and so on.

What is an Insurance
Claim?
Once you have purchased
the required insurance policy, you should be aware of the situations covered under the plan so that
you can make claims when needed. An insurance claim is the request made to the insurance
company to get coverage for the situations mentioned in the policy. In case of any eventuality,
always immediately inform your insurance provider and submit the duly filled in claim form along
with other requirements documents. The list of documents will vary for different types of plans.

Types of Insurance
In India, there are broadly 2 main
categories of insurance – life insurance and
non-life or general insurance.
● Life Insurance: This is the most
common type of insurance. It works
on the common principle that the
insured pays a premium for
coverage to the insurance
company. In return, the company
pays the sum assured to the family
of the insured on his/her sudden
death. Other additional benefits
offered, also called riders, along
with the coverage help make it a
comprehensive package. However,
there are certain situations not
covered under the plan that are called exclusions. There are 7 types of life insurance policy.
● General Insurance: All non-life insurance plans are clubbed under general insurance. Here,
the insurance company provides financial coverage for various risks in life, such as health
problems, travel issues, etc. There are different types of general insurance plans.

Types of Life Insurance Plans

Life insurance is of 7 types. Let us understand them and how they function
● Term Plan: It provides financial security to the family members of the insured on the
untimely death of the insured during the policy term. However, if the insured survives the

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policy term, he/she does not get any money. The insured pays a timely premium to get this
coverage.
● Endowment Plan: This is a combination of insurance and savings. Here, a policyholder pays
the premiums for which the company gives death benefit on his untimely demise. But if the
policyholder survives, he/she gets maturity benefit at the end of the policy. It is a fairly
expensive plan compared to a term plan because certain plans give maturity benefits along
with bonuses and dividends.
● Unit-Linked Insurance Plan (ULIP): A combination of insurance and investment, a ULIP is
best for those who have a fair risk-return appetite and don’t hesitate from investing in the
market. A part of the premium paid by the policyholder is invested in equity and debts and
the rest is kept safe for providing the sum assured. At the end of the policy term or on the
sudden demise of the life insured, the sum assured, bonus (if any) and profits made from
market investment are credited to the account of the beneficiary.
● Whole Life Insurance: Unlike a term plan, a whole life insurance plan provides coverage
throughout the life of the insured. It is usually up to 100 years of age. If the person insured
dies before the maturity age, the nominee specified in the policy receives the sum assured.
But if the insured outlives the maturity period, he gets survival benefits. There are 2 types of
whole life insurance plans – traditional and unit linked. The former is further classified as
participating, where the insurance company shares the bonus and dividends with the
insured, and non-participating, where the company does not share any bonus and dividends
with the insured.
● Annuity Plan: Also known as pension plan, an annuity insurance plan is your key to age
gracefully post-retirement. This insurance plan basically has two phases. The first phase is
called the accumulation phase in which the policyholder keeps adding to the policy in the
form of regular premiums. This is usually till the person is working. Post retirement, the
second phase, i.e. the annuity or vesting phase gets into effect. There are usually two
options, viz. to either receive the entire accumulated corpus in one go or receive a part of it
as lump sum while the rest of the amount stays in the policy fund. This is credited to the
account of the policyholder in regular installments, usually as monthly income.
● Child Plan: It is a perfect plan for those who want to save money for their children’s future
needs like higher education. This way you get to handle the expenses for your child’s needs
without digging a hole in your pocket. A child plan can be in the form of ULIP, where a part is
invested in the market and the remaining is used for coverage. Thus, the plan also offers
support in the form of financial coverage even when the insured, who can also be the
breadwinner, is not around.
● Money Back Policy: This policy is a type of life insurance where lifetime coverage is provided
to the life insured whereas the money is paid (the Sum Insured) back at regular intervals and
the remaining amount is paid at the end of the policy along with accrued bonus. In case the
insured dies before the maturity date, the full sum assured is paid to the beneficiary
irrespective of the benefits paid before.

Types of General Insurance Plans

There are various types of general insurance. Each has its own purpose and need. Let us understand
them to take an informed decision before buying one when needed.

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Motor Insurance
Also called vehicle insurance, it offers financial protection against any loss, theft or damage to cars,
two wheeler, trucks and other vehicles. There are 2 types of motor insurance coverage –
comprehensive coverage and third party coverage. As part of third party coverage, it extends
financial aid for any accidental death or bodily injury to others on the road. On the other hand, a
comprehensive coverage includes protection to both the owner, the insured car and the third party.
Apart from the regular coverage, additional benefits or add-on coverage offered with the insurance
make it a complete package. This is further segregated into 3 categories – car insurance, two
wheeler insurance and commercial vehicle insurance.
● Car Insurance: It is mandatory to get your car insured before taking it on the roads. The
financial coverage offered helps in dealing with uncalled for events like accidents, car theft
or loss. This insurance offers both Comprehensive and Third Party Liability Coverage. As part
of add-on coverage, car insurance also provides financial protection under personal accident
to the owner/driver of the car and other passengers in the car. Other additional covers are
Zero Depreciation Cover, Engine Protection, No Claim Bonus (NCB), etc.
● Two-Wheeler Insurance: Bike or Two Wheeler Insurance: According to a report, around 20
million two-wheeler vehicles were sold in India in 2017-2018. To stay safe on the road, a
two-wheeler user needs two-wheeler insurance. A two wheeler insurance offers both Third
Party Liability Cover (covering damage done by the bike to third party) and Comprehensive
(covering third party liability + damage to own bike and the riders). Along with these two
major covers, one can get protection against depreciation costs by opting for Zero
Depreciation Cover which enables the insured to receive full amount of repair and/or
replacement in case of claims made (except for tyres and tubes).
● Commercial Vehicle Insurance: Apart from private vehicles, a large number of commercial
vehicles also ply on the road. Commercial Vehicle Insurance provides financial protection to

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these commercial automobiles. Getting this insurance will help the owner in managing the
costs incurred in handling situations like theft, loss or damage to the vehicle.

Health Insurance
It is not easy to save a huge sum like Rs 10-12 lakh from your salary to meet your medical expenses
whenever needed. To manage such situations, you need health insurance which provides coverage
against rising medical expenses, including treatment and hospitalization. One can choose from a
number of health plans like cancer insurance and dental insurance. Health insurance has 2 broad
categories – indemnity plans and fixed benefit plans. These are further divided into various types.
● Indemnity Plans: This type of health insurance helps meet the costs incurred during
treatment or hospitalization. However, this cost cannot be more than the sum insured
chosen. E.g. John has an indemnity plan with sum insured equalling to Rs. 2 lakh and
undergoes treatment worth Rs. 2.1 lakh. In this case, the insurance company will pay Rs 2
lakh and the rest will be paid by John. Most of the plans cover pre- and post-hospitalisation
charges. This is also called mediclaim plans. Let us look at various types of indemnity health
plans.
o Individual Plans: This is medical coverage meant for individuals. This type of health
plan makes sure the cost of hospitalization is taken care of so that no holes are
drilled in your wallet at times such requirements. Along with hospitalization costs,
pre- and post-hospitalisation expenses are also covered. Apart from this, one can
benefit from tax exemptions too.
o Family-Floater Plans: If you’re a family person, i.e. a family to support, signing up for
a family floater health plan is a wise choice. Here just one insurance plan can be
shared for the entire family. It is considered a cost-effective plan, as a single
premium is used for all the family members. Some plans even include parents’
coverage.
o Group Plans: This type of health plan is designed to cater to the needs of employees.
This is offered by an organization to its employees. This costs less than a usual
health plan as the risk of the insurer gets divided among multiple policyholders.
● Fixed Benefit Plans: This type of health plan provides financial coverage only for specific
ailment(s). There is a fixed sum insured that the policyholder signs for at the time of
commencement of the policy which is paid in treatment of specified illness. There is further
classification of fixed benefit health plans.
o Critical Illness Plans: This is a must-have health policy, especially if you have a family
history of diseases like cancer, kidney failure, chronic lung dysfunction, cardiac
arrest, etc..
o Hospital Daily Cash Plans: It provides cash to meet the costs incurred in managing
other needs during hospitalization. This cash amount is fixed and ranges from Rs.
300 to Rs. 5000 per day..
o Personal Accident Plans: Apart from critical illnesses, one needs coverage against
uncalled events like an accident that leads to circumstances like loss of limbs, partial
or full disablement, etc. including accidental death. This is exactly the core reason
for the existence of this plan.
Home Insurance

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Home is a place where we feel the most secure and warm. Thus, it makes perfect sense to insure the
safety zone called home. Home insurance offers protection against damage or theft that may affect
your house and/or its belongings. There are various types of home insurance available, viz.:
● Standard Fire and Special Perils Plan: This is a standard plan that provides coverage against
fire and related mishaps mentioned in the policy. Structures included can range from
buildings, stocks, plans & machines to furniture.
● Home Structure Plan: This insurance plan covers the structure of the house (plinth and
foundation, both). Any damage to the structure of the house due to events like fire, flood,
lightning, man-made calamities, is covered in this policy.
● Renters Insurance Plan: This insurance is particularly designed for the tenants of a house. In
case of a mishap like a fire or some other calamity, the landlord will insure only the building
and not the belongings of the tenant. This insurance provides coverage to the belongings of
the tenants in the house against man-made or natural calamities.
● Landlord Insurance Plan: This insurance plan is specifically designed for landlords who have
let out their houses. Any loss occurring due to fire, flood, etc. is financially covered.

Travel Insurance
A travel insurance plan ensures that while traveling (be it domestic or abroad) you stay financially
covered to manage any untoward incident. These situations include loss of ticket or baggage,
cancellation of flight, trip delay, emergency medical situations, etc. In the absence of travel
insurance, in case you encounter such circumstances, you might waste your time and money in
dealing with them instead of enjoying or utilizing your trip. Let us look at various types of travel
plans available in India.
● Domestic Travel Plans: This travel plan provides financial backing when the policyholder is
traveling within the country. While traveling, you might need financial aid for handling
situations like loss of baggage, medical emergencies, flight delays/cancellation, etc. So, if you
have this insurance, aforementioned situations can be tackled smoothly.
● Family Travel Plans: A single travel insurance plan for the entire family is what a family travel
plan is all about. It is considered as a cost-effective plan compared to a single policy and is
thus recommended to have one if you are traveling with your family.
● Group Travel Plans: This type of travel insurance is taken by organizations planning trips for
their employees. This can be both a leisure or official trip. This insurance costs less
considering the huge number of policyholders involved and thus, helps the organization save
money.
● International Travel Plans: When traveling outside the national territory of India, a domestic
travel insurance turns void. Then International Travel Plans come into the picture to provide
financial protection in countries outside India.
● Schengen Travel Plans: If you’re planning to travel to any of the European countries, then
getting yourself covered with a Schengen travel insurance is a must. Without this insurance,
you are not allowed to visit these countries, either for business purposes or leisure.
● Multi Trip Travel Plans: This type of plan is perfect for those who frequently travel abroad,
usually more than once in a year. Main points covered in this insurance are medical
expenses, loss of baggage, trip delay/cancellation, personal liability, etc.
● Student Travel Plans: Taken by students who are planning to go abroad in order to pursue
education, this travel insurance takes care (financially) of medical emergencies, accidental

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injuries, theft, passport and baggage loss/damage, legal action, etc. A comprehensive travel
insurance for students comprises two main categories, viz. medical and regular expenses so
that one can cut on out-of-pocket expenses.
● Travel Insurance Plans for Senior Citizens: Generally, an individual travel insurance plan
designed only for senior citizens (i.e. people of 71 years or above) is called a senior citizen
travel insurance. This age may vary for different providers. This type of travel insurance
covers medical expenses for existing diseases along with ICU treatment, doctor’s visits,
surgical care, etc. along with general coverage.
● Travel Medical Plans: As the name suggests, this type of travel insurance is a short-term
insurance, catering to medical needs arising while traveling abroad. Unlike other travel
insurance plans, this one is designed to target the medical requirements related to
emergency like situations or otherwise too.

Rural Insurance
Rural areas cover the most of Indian land and to cover the financial risks faced by people in these
areas, there is rural insurance. People involved in manufacturing and tertiary sectors, primary
sectors also need financial protection. Farmers form the backbone of any economy and to be on the
healthy side, their backbone (financial aspect) should be well taken care of. There are various types
of rural insurance plans available in the insurance sector that one can benefit from. These are:
● Crop Insurance: This insurance helps in risk mitigation among groups in rural areas. In India,
the prime crop insurance plan goes by the name of Pradhan Mantri Fasal Bima Yojana
(PMFBY), which is an initiative of the Government of India. This plan is designed to stabilize
farmers’ income by providing financial support in times of crop loss/damage. Also, it aims to
encourage farmers to adopt new-age innovative agricultural techniques so as to enhance
their crop production and yield in a sustainable manner.
● Kisan Suvidha Bima: One of the prime products under rural insurance, this policy is custom-
made for welfare of farmers and rural households involved in agricultural activities. It
provides coverage against fire and burglary along with critical illness, stocks of farm produce,
insured tractor and personal accident.
● Tractor Insurance: Just like a car or bike requires insurance, a tractor which is a prime
instrument in the field of agriculture, also must be financially insured. It insures the
policyholder against accidental external damage, theft, burglary, earthquake, landslide, etc.,
including third-party liability coverage.
● Cattle insurance: Especially designed for animal husbandry, cattle insurance is still a new
concept. It provides financial protection to the cattle-breeding sector of India, thus
safeguarding their primary source of income in case of death or disablement to the same.
One of the prime policies under this type is Pashudhan Bima Yojna which aims at providing
insurance to indigenous/hybrid milch cattle and buffaloes against natural disasters like
droughts and floods. The animals are insured on their maximum market value and premium
is determined at a maximum of 50%.
● Weather Insurance: Perfect for those whose business depends largely on weather
fluctuations, weather insurance is designed to provide financial assistance in adverse
weather conditions hampering the income of policyholders. Farmers, Association of
Farmers, Governments and agro-related business entities are entitled to this particular type
of insurance.

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● Janata Suraksha Bima Yojna: One of the widely used products under the head of rural
insurance, this particular insurance plan targets rural households, farmers and small &
marginal labor class involved in agricultural and allied activities along with engagement in
unorganized sectors of urban economy. Its scope of coverage stretches from dwellings,
household goods (against fire and/or burglary) to personal accidents leading to permanent
total disability and/or death.
● Jan Sewa Bima Yojna: Providing insurance to the entirety of one’s assets, interests, liability
and self, Jan Sewa Bima Yojna targets rural and semi-urban dwellers.
● Unified Package Insurance Scheme (UPIS): A single year policy with lifelong renewal option,
this insurance plan comprises 7 sections, viz.: Crop Insurance, Personal Accident Insurance,
Life Insurance, Building and Content Insurance, Agricultural Pumpset Insurance, Student
Safety Insurance and Agricultural Tractor Insurance. Since it targets rural households and
farmers, the premium amount is kept small in order to fit in the tight-budget of a farmer and
likes.

Commercial Insurance
This is the extended branch of insurance. Here you will find all the insurance plans that are not
contained in the aforementioned categories. Plans like mobile insurance, laptop insurance, title
insurance, jewelry insurance, business liability insurance, etc. find place in this column. Commercial
insurance usually covers various risks involved in managing business. These can include plans like
marine insurance which is designed to provide financial assistance to water vehicles like cargo, ships,
submarines, etc. in case of loss or damage to these. Other plans can be shopkeeper’s insurance,
engineering insurance, worker’s compensation insurance, professional liability insurance and so on.
Here are some of the types of commercial insurance provided in India.
● Hull Insurance: It covers the expenses related to the loss or damage to the framework of a
ship. Hull insurance is designed to safeguard the interests of the ship owner in case things go
wrong with the framework and machinery of the ship or boat.
● Cargo Insurance: This insurance provides coverage for goods in transit. This is more of a
basic carrier insurance and provides indemnity cover for goods being carried via sea, road,
air or rail.
● Freight Insurance: This insurance is like an extra layer to the already existing marine
insurance. Unlike basic carrier insurance plans, this policy covers the value of the freight and
reimburses the same in full if something happens to the goods in transit. If one has fragile
goods in transit or the cost of the ship is relatively high, then freight insurance helps
overcome any untoward incident that might affect the goods or the ship.
● Liability Insurance: In case of any unfortunate event like a crash, collision or attack by
pirates, this insurance provides financial coverage for the consequential loss or damage.

4.2 Social Security Schemes: PMJJBY; PMSBY; APY

The Ministry of Finance, Government of India, in its Union Budget FY 2015-16, launched three social
security schemes.

● Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) for Life Insurance Cover
● Pradhan Mantri Suraksha Bima Yojana (PMSBY) for Personal Accidental Cover

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● Atal Pension Yojana (APY) for Old Age Pension

The schemes were launched as social security measures to help citizens prepare for unforeseen
circumstances and old age. Therefore, these schemes have been introduced at very low premiums.
The Government offers these schemes only to bank account holders and the premiums are to be
collected from the customer through an auto debit to the bank account. They are available to all
citizens who meet the eligibility criteria.

All banks are required to offer these schemes to their customers by entering into tie-ups with
insurance providers (Life & General).

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PMJ
JBY
–
Prad
han
Man
tri
Jeev
an
Jyoti
Bim
a
Yoja
na

Prad

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han Mantri Jeevan Jyoti Bima Yojana

(PMJJBY) is a life insurance scheme in
India backed by the Government. It was
announced in the 2015 budget. The life
insurance scheme is valid for one year
and is renewable from year to year,
offering coverage in case of sudden
death. It provides a cover of Rs.2 lakh
on the sudden demise of a policyholder
for a nominal premium of Rs.330 per
annum.

This scheme is purely an insurance

scheme, and there is no investment
component involved. The scheme is
offered by Life Insurance Corporation of
India (LIC) and also other insurance
companies willing to offer the product
on similar terms, in collaboration with
Banks.

Who Qualified For PMJJBY?

An individual in the age group of 18-50 years, having a savings bank account is eligible for the
scheme.
● The individual can join the scheme through one bank account only even if he has multiple
bank accounts
● In the case of joint account holders, all holders are eligible to join the scheme
● Linking of Aadhar card to the savings account is mandatory

Benefits Of Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)

● The scheme provides a life cover of Rs.2 lakh to the beneficiary in the event of sudden
demise of the policyholder.
● This is a life insurance scheme and offers benefits only in sudden demise; there are no
benefits available on maturity or surrender of the policy.
● The premium payable is eligible for tax benefits as a deduction under section 80C of the
Income Tax Act.

What Will The Premium Amount Be?

The premium amount is Rs.330 per person per annum. The breakup of the same is as follows:
● PMJJBY scheme premium to the insurance company – Rs. 289 per annum per member
● Reimbursement of expenses to the bank or the agent – Rs. 30 per annum per member
● Reimbursement of the administrative costs to the participating bank – Rs. 11 per annum per
member
Bifurcation of Enrolment Enrolment Enrolment Enrolment
premium during month during Sept, During Dec, During March,

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collected from of June, July & Oct & Nov Jan & Feb April & May
Customers August
Total premium Rs.330/- Rs.258/- Rs.172/- Rs.86/-
collected

What Is The Coverage Under This Scheme?

The life cover under the scheme is Rs. 2 lakh to the beneficiary of the policy in case of demise of the
policyholder.

What Is The Coverage Period?

The scheme is applicable for a period of one year. The initial period of enrolment was 31st August
2015 to 30th November 2015. The current period is from the 1st of June to 31st of May of the
subsequent year. The same will be renewable yearly.

How To Enroll This Scheme?

An individual can join the scheme through the bank in which he holds the savings account. The
scheme is managed through LIC and other private life insurance companies. Those who wish to
enroll can do so by paying the full annual premium amount anytime during the year. Those who
have exited the scheme can also join back by paying the annual premium.

How To Raise a Claim?

On the demise of the policyholder, the claim will be settled by the respective Pension and Group
Scheme (P&GS) Office/Unit of LIC. The process for claim settlement is as follows:
● The nominee of the policy will have to approach the bank of the policyholder, which is linked
to the PMJJBY scheme.
● The nominee must have the death certificate of the policyholder.
● Next, the nominee needs to collect the claim form and the discharge receipt. The same can
be collected from the bank or download the forms from the website of LIC, Bank,
Jansuraksha portal of the Finance Ministry.
● Next, the nominee needs to collect the claim form and the discharge receipt. The same can
be collected from the bank or download the forms from the website of LIC, Bank,
Jansuraksha portal of the Finance Ministry.
● The nominee must then submit the claim form, discharge receipt, death certificate and the
xerox copy of a canceled cheque of the nominee’s bank account if available, if not he must
provide bank details of the savings bank account of the policyholder that is linked to the
PMJJBY scheme.

PMSSBY - Pradhan Mantri Suraksha Bima Yojana

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The Pradhan Mantri Suraksha Bima Yojana is a

government-backed accident insurance scheme that
covers accidental death, permanent disability, and
partial disability. Individuals between 18 years and 70
years are eligible to apply for this scheme.

Features of Pradhan Mantri Suraksha Bima Yojana:

The features of this scheme are as follows:
● The accidental death insurance cover is
renewable each year.
● The annual premium to be paid is Rs.12. This
premium is excluding the service tax which is
charged at 14%.
● Up to Rs.2 lakh cover is payable to the
nominee of the subscriber if he or she dies in
an accident or is totally disabled due to the
accident.
● The premium is auto debited from the bank account of the subscriber.
● The subscriber can avail the long term option or renew the scheme every year.
● The subscriber can exit the scheme at any time and can sign-up at any time in the future.

Benefits of Pradhan Mantri Suraksha Bima Yojana:

The benefits of this scheme are as follows:

If accident causes the subscriber’s death Rs.2 lakh is paid to the

nominee.
If an accident leads to total and irrecoverable loss of Rs.2 lakh is paid.
use if both hands or feet, loss of eyes or loss of sight in
one year and loss of use of a hand or foot
If accident causes irrecoverable and total loss of sight Rs.1 lakh is paid.
of one eye and loss of use of one hand or foot

The subscriber can also avail deduction under Section 80C for the premium paid.

The sum insured received up to Rs.1 lakh is tax free under Section 10(10D).

Eligibility Criteria of Pradhan Mantri Suraksha Bima Yojana:

The eligibility criteria for subscribing for Pradhan Mantri Suraksha Bima Yojana is as follows:
● The minimum age requirement is 18 years.
● The maximum age requirement is 70 years.
● Those having a savings bank account and falling under the age group of 18 – 70 years are
eligible to subscribe to the policy.
● The bank account must be linked with the Aadhaar card.
● If the bank account is not linked with the Aadhaar card, then the Aadhaar card copy must be
attached with the application form.

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● If the individual has more than one savings account, he or she is only eligible to join the
scheme through a single bank account.
● Premium to be paid is Rs.12 yearly.
● The premium amount is auto debited from the insured’s bank account.
● The scheme is valid for a year and it can be renewed at the end of the year.
● The primary KYC document required is the applicant’s Aadhaar card.

Documents Required for Pradhan Mantri Suraksha Bima Yojana:

The Pradhan Mantri Suraksha Bima Yojana application form is to be duly filled. The details to be
filled are:
● Proof Id
● Aadhaar card
● Contact information
● Nominee details
● Application form (English, Hindi, Bengali, Marathi, Oriya, Telugu, Tamil or Gujarati).

The only document that has to be submitted along with the application form is the Aadhaar Card
copy if the Aadhaar is not linked to your savings bank account.

How to Enroll for Pradhan Mantri Suraksha Bima Yojana?

The subscriber can approach either one of the participating banks or insurance companies to
subscribe to Pradhan Mantri Suraksha Bima Yojana.

Most of the reputed banks allow the subscribers to take the policy through internet banking. The
subscriber will have to log in to the Internet banking account and enroll for the scheme.

Subscriber can also send a message through their registered mobile number to the toll free numbers
of the banks and the insurance companies.

Conditions for Termination of Pradhan Mantri Suraksha Bima Yojana:

The accidental cover will be terminated on following conditions and no benefits will be payable:
● When the subscriber attains 70 years.
● If the savings bank account is closed due to non-maintenance of the minimum balance that
is required to keep the insurance in force.
● If the subscriber is covered through more than one account, the insurance cover will be
restricted to one account and the extra premium paid will be forfeited.
● If the insurance cover is ceased due to technical reasons or due to insufficient balance, the
same can be reinstated after the premium is paid in full. The risk cover for that period will be
suspended and the risk cover is reinstated at the sole discretion of the insurance company.
● The participating banks will have to deduct the premium in the month when the auto debit
option is given and that amount will be remitted to the insurance company in that same
month.

Claim Process of PMSBY:

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The following is the procedure to claim for the benefits under PMSBY:
● The insured or the nominee (in the event of death) must immediately inform the bank about
the occurrence of the accident.
● Claim form must be obtained from the bank or designated insurance companies or via the
website. The form is to be duly filled.
● The completed claim form is to be submitted to the bank branch within 30 days from the
day of occurrence of the accident.
● The claim form is to be supported by original FIR, post mortem report, death certificate or in
case of disability, disability certificate that is issued by a Civil surgeon. Discharge certificate
should also be enclosed.
● The bank will verify the account details and then forward the case to the insurance company
within 30 days of the submission of the claim.
● The insurer will then confirm that the insured is in the list of the insured persons in the
master policy.
● The claim will be processed within 30 days of receiving the documents from the bank.
● The admissible claim will be then remitted to the nominee’s or the insured’s account.
● If the insured has not appointed a nominee, then the death claim will be paid to the legal
heir. The legal heir must produce the succession certificate.
● The maximum time that is allowed for the bank to finish the claim procedure is 30 days.

Following information is to be furnished in the claim process form:

● Name of the insured
● Full address of the insured
● Name and address of the bank branch
● Savings bank account number
● Contact number of the insured, i.e. mobile number, phone number, email address and
Aadhaar number
● Details of nominee, i.e. name, mobile or phone number, email address, bank account for
electronic transfer and Aadhaar number.
● Details of accident, i.e. the day, date and time of occurrence, place of occurrence, nature of
the accident and cause of death or the details of injury
● Name and address of the hospital or the attending doctor along with the contact details
● Time and date of when the medical officer of the company can visit the insured.
● Details of the documents that have been submitted

The nominee or claimant will have to sign the declaration and mention the policy number and claim
number along with the date. The authorized bank official will further review the form and sign it and
pass it on to the insurance company.
APY - Atal Pension Yojana

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Atal Pension Yojana is a pension scheme mainly

aimed at the unorganized sector such as maids,
gardeners, delivery boys, etc. This scheme
replaced the previous Swavalamban Yojana
which wasn’t accepted well by the people.

The goal of the scheme is to ensure that no

Indian citizen has to worry about any illness,
accidents or diseases in old age, giving a sense of
security. Private sector employees or employees
working with such an organization that does not
provide them pension benefits can also apply for
the scheme.

There is an option of getting a fixed pension of Rs

1000, Rs 2000, Rs 3000, Rs 4000, or Rs 5000 on
attaining an age of 60. The pension will be
determined based on the individual’s age and
the contribution amount. The contributor’s
spouse can claim the pension upon the
contributor’s death and upon the death of both the contributor and his/her spouse, the nominee
will be given the accumulated corpus. However, if the contributor dies before completing 60 years of
age, the spouse is also given an option to either exit the scheme and claim the corpus or continue
the scheme for the balance period.

As per the investment pattern laid down by the government of India, the collected amount under
the scheme is to be managed by the Pension Funds Regulatory Authority of India (“PFRDA”).

The Government would also make a co-contribution of 50% of the total contribution, or Rs. 1000 per
annum, whichever is lower, to all eligible subscribers who had joined between June 2015 and
December 2015 for a period of 5 years i.e., for financial years 2015-16 to 2019-20. The subscribers
should not be part of any other statutory social security schemes (For eg: Employee’s provident
fund), or should not be paying income taxes, in order to avail Government’s co-contribution.

Eligibility for Atal Pension Yojana?

To avail benefits from the Atal Pension Yojana, you must fulfill the below requirements:
● Must be a citizen of India.
● Must be between the age of 18-40
● Should make contributions for a minimum of 20 years.
● Must have a bank account linked with your Aadhar
● Must have a valid mobile number

Those who are availing benefits of Swavalamban Yojana will be automatically migrated to Atal
Pension Yojana.

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How to Apply for Atal Pension Yojana?

Follow these steps to avail the benefits of APY
● All nationalized banks provide the scheme. You can visit any of these banks to start your APY
account.
● Atal Pension Yojana forms are available online and at the bank. You can download the form
from the official website.
● The forms are available in English, Hindi, Bangla, Gujarati, Kannada, Marathi, Odia, Tamil,
and Telugu.
● Fill up the application form and submit it to your bank.
● Provide a valid mobile number, if you haven’t already provided it to the bank.
● Submit a photocopy of your Aadhaar card.

You will be sent a confirmation message when the application is approved.

Monthly Contributions
The monthly contribution depends upon the amount of pension you want to receive upon
retirement and also the age at which you start contributing.

Notes
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__________________________________________________________________________________

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Exercise (C4)
1) What are the benefits of PMJJBY?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

2) What is the benefit of APY?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

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3) What is insurance and its importance?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

4) Who is not eligible for PMSBY?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

Chapter 5: Schemes supporting Entrepreneurship and Basic

Accounting
Unit Objectives
At the end of this unit, you will be able to:

1. Understand the process of applying for a loan through Stand-up India; PMMY; PMEGP;
PMRY; PM SVANidhi and MLUPY Schemes.
2. Understand the Fixed and Variable Cost and Calculate the Break-even Point
3. Know about Costing & Pricing and Process of Bookkeeping and Recordkeeping

5.1 Stand-up India; PMMY; PMEGP; PMRY; PM SVANidhi; MLUPY

Stand-up India:

● Performance of the scheme:

Five years ago the Stand-up India scheme was launched by the government to promote
entrepreneurship among women, Scheduled Castes (SC) & Scheduled Tribes (ST). So far:
o Banks have sanctioned more than Rs. 25,000 crore to over 1.14 lakh accounts.
o Women-led enterprises have dominated the sanctions so far under the scheme,
which has now been extended till 2025.

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● About the Stand Up India Scheme:

o Stand-up India Scheme was launched on 5 April 2016 to promote entrepreneurship
at the grass-root level of economic empowerment and job creation.
o This scheme seeks to leverage the institutional credit structure to reach out to the
underserved sector of people such as SCs, STs and Women Entrepreneurs.
o The objective of this scheme is to facilitate bank loans between Rs.10 lakh and Rs.1
crore to at least one SC or ST borrower and at least one woman borrower per bank
branch for setting up a Greenfield enterprise.
o This enterprise may be in manufacturing, services or the trading sector.
o The offices of SIDBI and NABARD shall be designated Stand-Up Connect Centers
(SUCC).

● Eligibility under Stand Up India Scheme:

o SC/ST and/or women entrepreneurs; above 18 years of age.
o Loans under the scheme are available for only Greenfield projects.
o Borrower should not be in default to any bank or financial institution.
o In case of non-individual enterprises at least 51% of the shareholding and controlling
stake should be held by either an SC/ST or Woman entrepreneur.

● New Changes:
o The margin money requirement for loans under the Scheme has been reduced from
'upto 25%' to 'upto 15%' and activities allied to agriculture have been included in the
Scheme.
● Connect Centers:
o The offices of SIDBI (Small Industries Development Bank of India) and NABARD
(National Bank for Agriculture and Rural Development) are designated Stand-Up
Connect Centers (SUCC).

Pradhan Mantri Mudra Yojana (PMMY):

Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme of Government of India to “fund the
unfunded” by bringing such enterprises to the formal financial system and extending affordable

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credit to them. It enables a small borrower to borrow from all Public Sector Banks such as PSU
Banks, Regional Rural Banks and Cooperative Banks, Private Sector Banks, Foreign Banks, Micro
Finance Institutions (MFI) and Non-Banking Finance Companies (NBFC) for loans upto Rs 10 lakhs for
non-farm income generating activities. The scheme was launched on 8th April, 2015 by the Hon'ble
Prime Minister.

PMMY Eligibility:
To avail of the benefits of the PMMY Scheme, the person should be a citizen of India. The loans are
basically for people having a business plan in a Non-Farming Sector with Income generating activities
like the following:
● Manufacturing
● Processing
● Trade
● Service Sector
● Or any other fields whose credit demand is less than Rs. 10 lakhs.

The Indian Citizen seeking MUDRA Loans under the PMMY Scheme will have to approach either an
MFI, Bank or NBFC to avail it.

Objectives of Pradhan Mantri Mudra Yojana:

● Funding the unfunded – To sanction loans up to rupees 10 Lakhs to those who have a
business plan to generate income from a non-farm activity like manufacturing, processing,
trading, or service sector but don’t have enough capital to invest
● Reducing jobless economic growth – To help generate sources of employment and increase
the overall GDP by providing micro-enterprises with credit facilities.
● Monitoring and regulating the Microfinance institutions (MFI) – With the help of MUDRA
bank, the network of microfinance institutions will be monitored and new registration will
also be done.
● Integration of Informal economy into Formal sector – It will help India also grow its tax base
as incomes from the informal sector are non-taxed.
● Promoting financial inclusion – PMMY further adds to the vision of financial inclusion with
the aim to reach the last mile credit delivery to micro-businesses and taking the help of
technology solutions.

Types of PMMY Loans:

The Pradhan Mantri Mudra Yojana (PMMY) has three products as per the funding requirements of
the Beneficiary or the Entrepreneur.

Name of the Type of Loan Coverage of the Loan

Shishu < Rs. 50,000
Kishor Above Rs. 50,000 up to Rs. 5,00,000
Tarun Above Rs. 5,00,000 up to Rs. 10,00,000

Sectors Covered under PMMY:

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To maximize coverage of beneficiaries and tailor products to meet requirements of specific business
activities, sector/activity focused schemes would be rolled out. To begin with, based on the higher
concentration of businesses in certain activities/sectors, schemes are proposed for:

Sector Comments Types of Activities under that Sector

Land Loans to support the ● Auto-rickshaws, E- rickshaws, etc.
Transport purchase of transport ● Passenger cars and taxis.
Sector vehicles. These vehicles ● Small-goods transport vehicles.
could be used for goods or ● Other three-wheelers.
personal transport.

Service This includes community ● Hair and beauty salons, beauty parlors,
Sector services, social services, or etc.
personal services. ● Tailoring stores, boutiques, dry
cleaning services, etc.
● Gymnasium, Athletic training, medical
shops, etc.
● Garage, Cycle & motorcycle repair
centers, etc.
● Other services like photocopying
shops, courier agencies, etc.
Food Support for small scale food ● Manufacturing papads, pickles,
Product industries. jams/jellies, and other agricultural
Sector produce/preservation methods.
● Sweet shops, small service food
centers, etc.
● Everyday catering services, canteens,
etc.
● Micro cold storages, ice-making
factories, Cold chain vehicles, ice
cream making industries, etc.
● Bakeries and Baked products
manufacturing.
Textile Supporting micro textile ● Handloom and power loom industry
Sector industries that produce ● Handwork industry like embroidery,
garment and non-garment chikan work, dyeing and printing,
products. knitting, etc.
● Mechanical or computerized stitching
for garments and non-garments.
● Production of automobile and
furnishing accessories, etc.

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Prime Minister's Employment Generation Programme (PMEGP):

Prime Minister’s Employment Generation Programme (PMEGP) is a credit-linked subsidy programme

introduced by the government of India in 2008. PMEGP is a merger of two schemes, namely, Prime
Minister’s Rojgar Yojna and Rural Employment Generation Programme. This program focuses on
generating self-employment opportunities through micro-enterprise establishments in the non-farm
sector by helping unemployed youth and traditional artisans.

The Ministry of MSME administers the Prime Minister’s Employment Generation Programme
(PMEGP). The PMEGP Scheme is being implemented by Khadi and Village Industries Commission
(KVIC) at the national level. At the State level, the Scheme is being implemented through State Khadi
and Village Industries Commission Directorates, State Khadi and Village Industries Boards and
District Industries Centers and banks.

Objectives of Prime Minister’s Employment Generation Programme:

● Objectives of Prime Minister’s Employment Generation Programme
● Generation of sustainable and continuous self-employment opportunities in urban and rural
areas of the country
● Providing sustainable and continuous employment to a large segment of rural and urban
unemployed youth, traditional and prospective artisans through the establishment of micro-
enterprises
● Facilitating the financial institution’s participation for higher credit flow to the micro sector

Eligibility:
● Individuals with age of 18 years or more
● Passing standard VIII is required for a project above Rs 5 lakh in the service sector and above
Rs 10 lakh in the manufacturing sector
● Institutions registered under Societies Registration Act- 1860
● Production based co-operative societies
● Self-help groups and charitable trust

Salient features of the scheme:

● The Scheme is implemented through Khadi and Village Industries Commission, State Khadi
and Village Industries Commission Directorates, State Khadi and Village Industries Boards
and District Industries Centers and banks in Urban and Rural areas in the ratio of 30:30:40
between Khadi and Village Industries Commission / Khadi and Village Industries Boards / DIC
respectively
● Assistance under the PMEGP is only available to new units that are to be established
● There is no income ceiling for setting up projects
● Existing units or units that are already availing any government subsidy (State or Central) are
ineligible

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● Any industry including coir based projects (excluding those mentioned in the negative list)
can take advantage of this scheme
● The per capita investment under the scheme should not exceed Rs 1 lakh in plain areas and
Rs 1.5 lakh in hilly areas.
● Maximum project cost Rs 10 lakh in the service sector and Rs 25 lakh in the manufacturing
sector is this limit.

Areas of Operation:
Rural area, as stated under Khadi and Village Industries Commission Act 2006 – Scheme, means the
area comprising any village and includes the area comprising any town. The population should not
exceed twenty thousand or such other figures as the Central Government may specify from time to
time. In the urban area, only District Industries Centres (DIC) are included.

Negative list of activities:

● Businesses / Industries connected with processing/productions/sale of meat or intoxicant
items like pan/beedi/cigarette etc.
● Businesses/ Industries linked with sericulture, cultivation, floriculture, horticulture.
● Manufacture of containers of recycled plastic/polythene carry bags of less than 20 microns
● Processing of pashmina wool and other products which involves hand spinning and hand
weaving which comes under the purview of Khadi Certification Rule.
● Rural transport (except houseboat, shikara, tourist boat in Andaman & Nicobar Islands and
in Jammu & Kashmir, auto rickshaw and cycle rickshaw.) CNG auto rickshaw will be
permitted only in Andaman & Nicobar Islands and North Eastern Region of the country with
the prior approval of Chief Secretary of the State on merit.

Margin:
The margin money contribution is 5% of the cost of the project for special category borrowers and
10% for General category borrowers. Illustration: Suppose Miss Nishitha applies to XYZ bank for a Rs
8 lakh loan, the bank might finance only 80% of the loan amount (i.e. Rs 6,40,000/-). The balance
20% (i.e Rs 1,60,000/-) is called margin money and Nishita has to make arrangements for the same.

Subsidy:
● General Category: The eligible subsidy is 25% of the cost of the project in rural areas and
15% in urban areas.
● Special Category: The eligible subsidy is 35% of the cost of the project in rural areas and 25%
in urban areas.

Quantum of margin money subsidy:

Categories of beneficiaries under Beneficiary’s Rate of Subsidy

PMEGP own
contribution (of Urban Rural
project cost)
General Category 10% 15% 25%
Special Category (including SC/ST/OBC 5% 25% 35%
/Minorities/ Women, Ex-Servicemen,

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Physically handicapped, NER, Hill, and

Border areas etc)

The rate of Interest and Repayment Schedule:

● The normal interest rate is applicable to the enterprise from time to time. The Repayment
Schedule ranges from 3 -7 years.

Security:
● No collateral security nor any third party guarantee is insisted here. Any assets created from
the bank loan should be hypothecated to the Bank.

Nodal Agency:
● At the national level, KVIC is the nodal agency. The scheme will be implemented through
Khadi and Village Industries Commission, Khadi and Village Industries Boards and DIC in both
rural and urban areas.

Training:
● A 2 weeks training period is mandatory for all the beneficiaries.

Procedure or applying at PMEGP e-portal:

● First, visit the website my.msme.gov.in or kviconline.gov.in Click the link ”Prime Minister
Employment Generation Programme” or “PMEGP ePortal”

Sectors that can avail PMEGP Loan:

You can avail PMEGP Loan if you work in the following sectors:
● Agro-based Food Processing
● Service and Textile

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● Forest-based Products
● Hand Made Paper and Fiber
● Rural Engineering and Bio-Tech
● Mineral-based Products
● Polymer and Chemical-based Products

PMEGP Tracking Steps:

Once you have applied for PMEGP Loan, you can track the status of PMEGP Loan Application using
the steps as mentioned below:
● Visit the official link of PMEGP kviconline.gov.in/pmegp/
● Click on ‘Login Form for Registered Applicant’.
● Enter your ID and Password and click on Login
● To know the status of your PMEGP loan application, click on ‘View Status’

Pradhan Mantri Rozgar Yojana (PMRY):

PMRY aims in setting up 7 lakh micro-enterprises through inducting service and business ventures
over a period of 2 years 6 months. Small Scale Industries (SSI) uses its vision to utilize local resources,
technologies for productive purposes and exploit the local market at the micro level.

Collateral: No collateral is required for projects up to Rs.1 lakh

PMRY – Eligibility
Age For all educated unemployed people between 18-35
years
Educational Qualification 8th standard – Passed
Interest Rate Normal interest rate shall be charged
Repayment Schedule Between 3 to 7 years after an initial moratorium
Family Income Income of beneficiary along with spouse nor the
income of parents shall exceed Rs. 40,000/month
Residence Permanent resident of the area for at least 3 years
Defaulter Should not be a defaulter to any nationalized financial
institution/bank / cooperative bank
Subsidy and Margin money Subsidy will be limited to 15% of the project cost
subject to a ceiling of Rs. 7,500 per borrower
Reservation Weaker sections (SCs/STs), including women

Features of PMRY:
● Project Cost Covered under PMRY Scheme (Loan Amount)

Sector Project Cost

Business Sector Rs. 2 lakh
Service Sector Rs. 5 lakh
Industry Sector Rs. 5 lakh

● PMRY is a centrally sponsored scheme with repayment tenure from 3 years to 7 years

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● Training provided to borrowers for 15-20 days to ensure the setting up of their businesses
● The primary body of this scheme is the Development Commissioner (Small-Scale Industries)
under the Ministry of Small Scale, Rural and Agro, Industries
● Commissioner/Director of Industries implements the scheme at the State level except for
the four metropolitan cities of the country
● Every quarter, State Level PMRY Committee monitors the progress of the scheme
● Implementing agencies of this scheme are the metropolitan cities of the country
● To expand their coverage areas of small tea gardens, fishing, poultry, piggery, and
horticulture
● Easy Equated Monthly Installments (EMIs) for borrower’s business initialization

Relief Norms and Measures for North Eastern Region:

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● Subsidy component @15% with an upper ceiling of Rs. 15,000

● Assistance Eligibility for project costing up to Rs. 2 lakh
● Margin money may vary from 5% to 12.5% of the project cost

How to apply for a loan under Pradhan Mantri Rozgar Yojana (PMRY)?
Please follow the steps below for a successful registration process and loan apply under Pradhan
Mantri Rozgar Yojana online:
● Step 1: Visit the official website of Prime Minister’s Rozgar Yojana https://pmrpy.gov.in/
● Step 2: Download the application form and fill it with complete details.
● Step 3: Submit the duly filled form to the respective bank that comes under the PMRY
scheme and then the concerned bank will get in touch with you.

Documents Required:
Copies of the following documents are required to apply for Pradhan Mantri Rozgar Yojana (PMRY):
Duly filled application form with passport-sized photographs
● EDP Training certificate
● Copy of the Proposed Project Profile
● Experience, qualification, and technical certificates
● Proof of Date of Birth (SSC certificate or TC from school where studied)
● Residence proof for 3 years, ration card or any other proof of residency
● Income certificate issued by MRO (Mandal Revenue Officer)
● Caste certificate issued by MRO, if applicable
● Driving License
● Any other document required by the lender

Modifications in the PMRY Scheme:

● The upper age limit has been raised by 10 years beyond 35 years for SCs/STs and women
● Educational qualifications for eligibility under the scheme has been reduced to 8th class
from 10th class
● The upper limit of the project cost has also been increased from Rs. 1 lakh to Rs. 2 lakh
● The scheme will cover agriculture and allied activities and exclude direct agricultural
operations, such as manure and its purchase, raising crops, etc.
● Group financing eligibility up to Rs. 5 lakh
● The upper age limit increased up to 40 years in seven North Eastern States of India

Prime Minister Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi) Scheme:

The PM Street Vendor’s AtmaNirbhar Nidhi (PM SVANidhi) was launched by the Ministry of Housing
and Urban Affairs on June 01, 2020 for providing affordable Working Capital loan to street vendors
to resume their livelihoods that have been adversely affected due to Covid-19 lockdown.

The duration of the scheme is until March 2022.

S. No. Particulars Guidelines

1 Scheme PM SVANidhi (PM Street Vendor's AtmaNirbhar Nidhi)

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2 Benefits ● For working capital loan up to Rs. 10,000/-

● Incentivization of regular repayment
● Rewards for digital transactions

3 Beneficiaries All street vendors engaged in vending in urban areas as on or

before March 24, 2020. Identification of beneficiaries under
the scheme will be done by Urban Local Bodies (ULB) / Town
Vending Committees (TVC).
4 Eligible Criteria The Scheme is available to all street vendors engaged in
of Beneficiaries vending in urban areas as on or before March 24, 2020. The
eligible vendors will be identified as per following criteria:
● Street vendors in possession of Certificate of Vending /
Identity Card issued by Urban Local Bodies (ULBs).
● The vendors, who have been identified in the survey but
have not been issued Certificate of Vending / Identity
Card. Provisional Certificate of Vending will be generated
for such vendors by ULB. The ULBs are supposed to issue
such vendors the permanent Certificate of Vending and
Identification Card immediately and positively within a
period of one month.
● Street Vendors, left out of the ULB led identification
survey or who have started vending after completion of
the survey and have been issued Letter of
Recommendation (LoR) to that effect by the ULB / Town
Vending Committee (TVC).
● The vendors of surrounding development/ peri-urban /
rural areas vending in the geographical limits of the ULBs
and have been issued Letter of Recommendation (LoR) to
that effect by the ULB / TVC.

5 Quantum of Urban street vendors will be eligible to avail a Working Capital

Finance (WC) loan of up to Rs.10,000/-
6 Rate of Interest RLLR* + 1.45% + BSS (0.50) i.e. at present Effective rate is
7.05 + 1.45 + 0.50 = 9.00%
*Repo Linked Lending Rate – Variable
7 Interest Subsidy The Beneficiaries availing loan under the scheme, are eligible
to get an interest subsidy @ 7%.
8 Tenure Working Capital Term Loan (WCTL) loan with tenure of 1 year
and repaid in monthly installments.
9 Moratorium No moratorium period (NIL)
10 Repayment Repayment in 12 Equal monthly installments
11 Margin NIL
12 Security Hypothecation of goods/assets financed under the Scheme
13 Scheme Validity The interest subsidy is available up to March 31, 2022, so the
scheme validity is till 31.03.2022
14 Cash Back Beneficiaries would be incentivized with a monthly cashback*
Incentives for in the range of Rs.50/- to Rs.100/- as per the following
Digital criteria:
Transactions ● On executing 50 eligible transactions in a month: Rs.50/-

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● On executing the next 50 additional eligible transactions

in a month: Rs.25/- (i.e on reaching 100 eligible
transactions, the beneficiary receives Rs.75/-).
● On executing the next additional 100 or more eligible
transactions: Rs.25/- (i.e on reaching 200 eligible
transactions, the beneficiary receives Rs.100/-).

Here eligible transactions mean a digital payout or receipt

with minimum value of Rs.25/-.
*Subject to Maximum Rs. 1200/-
15 Rupay card All Beneficiaries under this scheme will get Rupay card linked
to the saving account mentioned in the LAF
16 Processing Fee Nil
17 Prepayment Nil
Charges

Mukhyamantri Laghu Udhyog Protahasan Yojna (MLUPY):

Mukhyamantri Laghu Udhyog Protsahan Yojana (MLUPY) is launched by Rajasthan state government
to encourage and improve establishments and also to increase the number of employment in the
State of Rajasthan. Through this scheme the Rajasthan state government bears an interest up to 8%
on amounts financed by the banks to establishments.

Hence a loan in the nature of Term Loan or a Credit facility both are eligible to get subsidy on the
part of interest. The finance must be taken from any nationalized bank, private sector banks,
scheduled small finance banks, regional rural banks, Rajasthan Financial Corporation and SIDBI are
eligible.
Loan Amount Subsidy on Interest Maximum

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Benefit for 5
years
Upto 25 Lakhs 8% 10,00,000
Upto 5 Crore 6% 1,50,00,000
Upto 10 Crore 5% 2,50,00,000

*The subsidy on interest amount is received upto 5 years.

**Collateral security is not required if the loan amount is upto 10 lakh.
Applicants must be an individual/ self-help group/ society/ partnership firm/ LLP/ Company.
● Any new enterprises established at least before 1 year ago
● Any existing unit wants to expansion / diversification/ modernization projects

Hence pre-established and newly established both types of units are eligible to get finance under
this scheme.

Process
Under the scheme the applications will have to be submitted online, whose process will be according
to the guidelines prescribed for implementation of the Scheme. Loan applications up to Rs. 10 lakh
can be forwarded directly to the banks without any interview and the loans above Rs. 10 lakh will be
forwarded to the bank after being scrutinized by the District Level Task Force Committee.

Online Application
For online application you can go to the
link https://sso.rajasthan.gov.in and go to
the Citizen App and apply for the scheme
on MLUPY Icon.
● Step 1- Visit the Official Website of
Mukhyamantri Laghu Udyog
Protsahan Yojana under SSO
Rajasthan i.e. sso.rajasthan.gov.in.
● Step 2- On the Homepage,
o If you are already
registered on the portal,
you will have to login by
entering login credentials.
o If you are not registered on
the portal, you will have to
register for which you will have to click on the Registration.
● Step 3- The Registration Form page will be displayed on the screen.
● Step 4- You have to select your category.
o Now enter the required details.
● Step 5- Click on the Submit Button for the registration.
● Step 6- After that, you will have to login by going to the home page.

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● Step 7- After logging in, you have to click on Rajasthan Chief Minister Small Scale Industries
Promotion Scheme.
● Step 8- After this, the application form page will be displayed on the screen.
● Step 9- You have to fill in all the information asked in this application form carefully.
● Step 10- Now you have to attach all the important documents.
● Step 11- After that, you have to click on the submit button.
● Step 12- Thus you will be able to apply for this scheme.

5.2 Fixed and Variable Cost; Break-even Point; Costing & Pricing;
Bookkeeping and Recordkeeping
In managerial economics another area which is of great importance is cost of production. The cost
which a firm incurs in the process of production of its goods and services is an important variable for
decision making. Total cost together with total revenue determines the profit level of a business. In
order to maximize profits a firm endeavors to increase its revenue and lower its costs.

Cost Concepts:
Costs play a very important role in managerial decisions especially when a selection between
alternative courses of action is required. It helps in specifying various alternatives in terms of their
quantitative values.

Following are various types of cost concepts −

● Future and Past Costs
Future costs are those costs that are likely to be incurred in future periods. Since the future is
uncertain, these costs have to be estimated and cannot be expected to be absolutely correct
figures. Future costs can be well planned, if the future costs are considered too high,
management can either plan to reduce them or find out ways to meet them.

Management needs to estimate future costs for various managerial uses where future costs are
relevant such as appraisal, capital expenditure, introduction of new products, estimation of
future profit and loss statements, cost control decisions, and expansion programs.

Past costs are actual costs which were incurred in the past and they are documented essentially
for record keeping activity. These costs can be observed and evaluated. Past costs serve as the
basis for projecting future costs but if they are regarded as high, management can indulge in
checks to find out the factors responsible without being able to do anything about reducing
them.

● Incremental and Sunk Costs

Incremental costs are defined as the change in overall costs that result from a particular decision
being made. Change in product line, change in output level, change in distribution channels are
some examples of incremental costs. Incremental costs may include both fixed and variable
costs. In the short period, incremental cost will consist of variable cost—costs of additional
labor, additional raw materials, power, fuel etc.

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Sunk cost is the one which is not altered by a change in the level or nature of business activity. It
will remain the same irrespective of activity level. Sunk costs are the expenditures that have
been made in the past or must be paid in the future as a part of contractual agreement. These
costs are irrelevant for decision making as they do not vary with the changes contemplated for
future by the management.

● Out-of-Pocket and Book Costs

“Out-of-pocket costs are those that involve immediate payments to outsiders as opposed to
book costs that do not require current cash expenditure"

Wages and salaries paid to the employees are out-of-pocket costs while the salary of the owner
manager, if not paid, is a book cost.

The interest cost of the owner's own fund and depreciation cost are other examples of book
cost. Book costs can be converted into out-of-pocket costs by selling assets and leasing them
back from the buyer.

If a factor of production is owned, its cost is a book cost while if it is hired it is an out-of-pocket
cost.

● Replacement and Historical Costs

Historical cost of an asset states the cost of plant, equipment, and materials at the price paid
originally for them, while the replacement cost states the cost that the firm would have to incur
if it wants to replace or acquire the same asset now.

For example − If the price of bronze at the time of purchase in 1973 was Rs.18 per kg and if the
present price is Rs.21 per kg, the original cost Rs.18 is the historical cost while Rs.21 is the
replacement cost.

● Explicit Costs and Implicit Costs

Explicit costs are those expenses which are actually paid by the firm. These costs appear in the
accounting records of the firm. On the other hand, implicit costs are theoretical costs in the
sense that they go unrecognized by the accounting system.

● Actual Costs and Opportunity Costs

Actual costs mean the actual expenditure incurred for producing a good or service. These costs
are the costs that are generally recorded in account books.

For example − Actual wages paid, cost of materials purchased.

The concept of opportunity cost is very important in modern economic analysis. The opportunity
costs are the return from the second best use of the firm’s resources, which the firm forfeits. It
avails its return from the best use of the resources.

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For example, a farmer who is producing wheat can also produce potatoes with the same factors.
Therefore, the opportunity cost of a ton of wheat is the amount of the output of potatoes which
he gives up.

● Direct Costs and Indirect Costs

There are some costs which can be directly attributed to the production of a unit for a given
product. These costs are called direct costs.

Costs which cannot be separated and clearly attributed to individual units of production are
classified as indirect costs.

Types of Costs:
All the costs faced by companies/ business organizations can be categorized into two main types −
● Fixed costs
● Variable costs

Fixed costs are expenses that have to be paid by a company, independent of any business activity. It
is one of the two components of the total cost of goods or service, along with variable cost.

● Examples include rent, buildings, machinery, etc.

Variable costs are corporate expenses that vary in direct proportion to the quantity of output.
Unlike fixed costs, which remain constant regardless of output, variable costs are a direct function of
production volume, rising whenever production expands and falling whenever it contracts.

● Examples of common variable costs include raw materials, packaging, and labor directly
involved in a company's manufacturing process.

Determinants of Cost:
The general determinants of cost are as follows
● Output level
● Prices of factors of production
● Productivities of factors of production
● Technology

Short-Run Cost-Output Relationship

Once the firm has invested resources into the factors such as capital, equipment, building, top
management personnel, and other fixed assets, their amounts cannot be changed easily. Thus in the
short-run there are certain resources whose amount cannot be changed when the desired rate of
output changes, those are called fixed factors.

There are other resources whose quantity used can be changed almost instantly with the output
change and they are called variable factors. Since certain factors do not change with the change in
output, the cost to the firm of these resources is also fixed, hence fixed cost does not vary with

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output. Thus, the larger the quantity produced, the lower will be the fixed cost per unit and marginal
fixed cost will always be zero.

On the other hand, those factors whose quantity can be changed in the short-run are known as
variable cost. Thus, the total cost of a business is the sum of its total variable costs (TVC) and total
fixed cost (TFC).
TC = TFC + TVC

For example, when the total fixed cost is Rs. 1000 and the total variable cost is Rs. 200 then
the Total cost is = Rs. 1200 ( Rs. 1000 + Rs. 200).

Long-Run Cost-Output Relationship

The long-run is a period of time during which the firm can vary all its inputs. None of the factors is
fixed and all can be varied to expand output.

It is a period of time sufficiently long to permit the changes in plants like − the capital equipment,
machinery, land etc., in order to expand or contract output.

The long-run cost of production is the least possible cost of production of producing any given level
of output when all inputs are variable including the size of the plant. In the long-run there is no fixed
factor of production and hence there is no fixed cost.

If Q = f(L, K)

TC = L. PL + K. PK

Economies and Diseconomies of Scale:

● Economies of Scale
As the production increases, efficiency of production also increases. The advantages of large
scale production that result in lower unit costs are the reason for the economies of scale.
There are two types of economies of scale −

✔ Internal Economies of Scale: It refers to the advantages that arise as a result of the
growth of the firm. When a company reduces costs and increases production, internal
economies of scale are achieved. Internal economies of scale relate to lower unit costs.

✔ External Economies of Scale: It refers to the advantages firms can gain as a result of the
growth of the industry. It is normally associated with a particular area. External
economies of scale occur outside of a firm and within an industry. Thus, when an
industry's scope of operations expands due to the creation of a better transportation
network, resulting in a decrease in cost for a company working within that industry,
external economies of scale are said to have been achieved.

● Diseconomies of Scale

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When the prediction of economic theory becomes true that the firm may become less
efficient, when it becomes too large then this theory holds true. The additional costs of
becoming too large are called diseconomies of scale. Diseconomies of scale result in rising
long run average costs which are experienced when a firm expands beyond its optimum
scale.

For Example − Larger firms often suffer poor communication because they find it difficult to
maintain an effective flow of information between departments. Time lags in the flow of
information can also create problems in terms of response time to changing market
conditions.

Contribution and Break Even Analysis

Break-even analysis is a very important aspect of a business plan. It helps the business in
determining the cost structure and the amount of sales to be done to earn profits.

It is usually included as a part of a business plan to observe the profits and is enormously useful in
pricing and controlling cost.

Break - Even Point = Fixed Costs / (Unit Selling Price – Variable Costs)

Using the above formula, the business can determine how many units it needs to produce to reach
break-even.

For an example:
Variable costs per unit: Rs. 400 Sale price per unit: Rs. 600 Desired profits: Rs. 4,00,000 Total
fixed costs: Rs. 10,00,000

First we need to calculate the break-even point per unit, so we will divide the Rs.10,00,000
of fixed costs by the Rs. 200 which is the contribution per unit (Rs. 600 – Rs. 200).

Break-Even Point = Rs. 10,00,000/ Rs. 200 = 5000 units

Next, this number of units can be shown in rupees by multiplying the 5,000 units with the
selling price of Rs. 600 per unit.

We get Break-Even Sales at 5000 units x Rs. 600 = Rs. 30,00,000. (Break-even point in
rupees).

When a firm attains break even, the cost incurred gets covered. Beyond this point, every additional
unit which would be sold would result in increasing profit. The increase in profit would be by the
amount of unit contribution margin.

Unit contribution Margin = Sales Price - Variable Costs

For an example,

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If the price of a product is Rs.100, total variable costs are Rs. 60 per product and fixed cost is
Rs. 25 per product, the contribution margin of the product is Rs. 40 (Rs. 100 – Rs. 60).
This Rs. 40 represents the revenue collected to cover the fixed costs. In the
calculation of the contribution margin, fixed costs are not considered.

Let’s have a look at the following key terms −

✔ Fixed costs − Costs that do not vary with output
✔ Variable costs − Costs that vary with the quantity produced or sold.
✔ Total cost − Fixed costs plus variable costs at level of output.
✔ Profit − The difference between total revenue and total costs, when revenues are higher.
✔ Loss − The difference between total revenue and total cost, when cost is higher than the
revenue.

Breakeven chart:
The Break-even analysis chart is a graphical representation of costs at various levels of activity.

With this, business managers are able to ascertain the period when there is neither profit nor loss
made for the organization. This is commonly known as "Break-even Point".

In the graph above, the line OA represents the variation of income at various levels of production
activity.

OB represents the total

fixed costs in the
business. As output
increases, variable costs
are incurred, which
means fixed + variable
costs also increase. At
low levels of output,
costs are greater than
income.

At the point of
intersection “P” (Break-
even Point), costs are
exactly equal to income,
and hence neither profit
nor loss is made.

Variable Costs vs. Fixed Costs

Variable Cost Fixed Cost

Definition Costs that vary/change depending Costs that do not change in
on the company’s production relation to production volume

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volume
When Total variable costs increase Total fixed cost stays the same
Production
Increases
When Total variable costs decrease Total fixed cost stays the same
Production
Decreases
Examples Direct Materials (i.e. kilograms of Rent
wood, tons of cement) Advertising
Direct Labor (i.e. labor hours) Insurance
Depreciation

The following table shows various costs incurred by a manufacturing company:

Cost Variable Fixed
Depreciation of executive jet x
Cost of shipping finished goods to customers x
Wood used in manufacturing furniture x
Sales manager’s salary x
Electricity used in manufacturing furniture x
Packing supplies for shipping products x
Sand used in manufacturing concrete x
Supervisor’s salary x
Advertising costs x
Executive’s life insurance x

Bookkeeping and Its importance:

Bookkeeping is the process of recording your
company’s financial transactions into organized
accounts on a daily basis. It can also refer to the
different recording techniques businesses can
use. Bookkeeping is an essential part of your
accounting process for a few reasons. When you
keep transaction records updated, you can
generate accurate financial reports that help
measure business performance. Detailed records
will also be handy in the event of a tax audit.

Methods of bookkeeping
Before you begin bookkeeping, your business must decide what method you are going to follow.
When choosing, consider the volume of daily transactions your business has and the amount of
revenue you earn. If you are a small business, a complex bookkeeping method designed for
enterprises may cause unnecessary complications. Conversely, less robust methods of bookkeeping
will not suffice for large corporations.

With this in mind, let’s break these methods down so you can find the right one for your business.

● Single-entry bookkeeping
Single-entry bookkeeping is a straightforward method where one entry is made for each
transaction in your books. These transactions are usually maintained in a cash book to track
incoming revenue and outgoing expenses. You do not need formal accounting training for the

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single-entry system. The single-entry method will suit small private companies and sole
proprietorships that do not buy or sell on credit, own little to no physical assets, and hold small
amounts of inventory.

● Double-entry bookkeeping
Double-entry bookkeeping is more robust. It follows the principle that every transaction affects
at least two accounts, and they are recorded as debits and credits. For example, if you make a
sale for $10, your cash account will be debited for $10 and your sales account will be credited by
the same amount. In the double-entry system, the total credits must always equal the total
debits. When this happens, your books are “balanced.”

Using the double-entry method for bookkeeping makes more sense if your business is large,
public, or buys and sells on credit. Enterprises often choose the double-entry system because it
leaves less room for error. In a way, it ‘double-checks’ your books because each transaction is
recorded as two matching but offsetting accounts.

● Cash-based or accrual-based
The next step is choosing between a cash or accrual basis for your bookkeeping. This decision
will depend on when your business recognizes its revenue and expenses.

✔ In cash-based, you recognize revenue when you receive cash into your business. Expenses
are recognized when they are paid for. In other words, any time cash enters or exits your
accounts, they are recognized in the books. This means that purchases or sales made on
credit will not go into your books until the cash exchanges.
✔ In the accrual method, revenue is recognized when it is earned. Similarly, expenses are
recorded when they are incurred, usually along with corresponding revenues. The actual
cash does not have to enter or exit for the transaction to be recorded. You can mark your
sales and purchases made on credit right away.

Both a cash and accrual basis can work with single- or double-entry bookkeeping. In general
however, the single-entry method is the foundation for cash-based bookkeeping. Transactions
are recorded as single entries which are either cash coming in or going out. The accrual basis
works better with the double-entry system.

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How to record entries in bookkeeping

Generating financial statements like balance sheets, income statements, and cash flow statements
helps you understand where your business stands and gauge its performance. For these reports to
portray your business accurately, you must have properly documented records of your transactions.
Keeping these records as current as possible is also helpful when reconciling your accounts.

Recording transactions begins with source documents like purchase and sales orders, bills, invoices,
and cash register tapes. Once you gather these documents, you can record the transactions using
journals, ledgers, and the trial balance. If you are a very small company, you may only need a cash
register. The information can then be consolidated and turned into financial statements.

● Cash registers
A cash register is an electronic machine that is used to calculate and register transactions.
Usually, cash registers are used to record cash flow in stores. The cashier collects the cash for a
sale and returns a balance amount to the customer. Both the collected cash and balance
returned are recorded in the register as single-entry cash accounts. Cash registers also store
transaction receipts, so you can easily record them in your sales journal.

Cash registers are commonly found in businesses of all sizes. However, they aren’t usually the
primary method of recording transactions because they use the single-entry, cash-based system
of bookkeeping. This makes them convenient for very small businesses but too simplistic for
enterprises.

● The journal
The journal is called the book of original entry. It is the place where a business chronologically
records its transactions for the first time. A journal can be either physical (in the form of a book
or diary), or digital (stored as spreadsheets, or data in accounting software). It specifies the date
of each transaction, the accounts credited or debited, and the amount involved. While the
journal is not usually checked for balance at the end of the fiscal year, each journal entry affects
the ledger. As we’ll learn, it is imperative that the ledger is balanced, so keeping an accurate
journal is a good habit to keep. This form is useful for double-entry bookkeeping.

● The ledger
A ledger is a book or a compilation of accounts. It is also called the second book. After you enter
transactions in a journal, they are classified into separate accounts and then transferred into the
ledger. These records are transcribed by accounts in the order: assets, liabilities, equity, income,
and expenses. Like the journal, the ledger can also be physical or electronic spreadsheets.

A ledger contains a chart of accounts, which is a list of all the names and number of accounts in
the ledger. The chart usually occurs in the same order of accounts as the transcribed records.

Unlike the journal, ledgers are investigated by auditors, so they must always be balanced at the
end of the fiscal year. If the total debits are more than the total credits, it’s called a debit
balance. If the total credits outweigh the total debits, there is a credit balance. The ledger is
important in double-entry bookkeeping where each transaction changes at least two sub-ledger
accounts.

● Trial balance
The trial balance is produced from the compiled and summarized ledger entries. The trial
balance is like a test to see if your books are balanced. It lists the accounts exactly in the

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following order: assets, liabilities, equity, income, and expenses with the ending account
balance.

An accountant usually generates the trial balance to see where your business stands and how
well your books are balanced. This can then be cross-checked against ledgers and journals.
Imbalances between debits and credits are easy to spot on the trial balance. It is not always
error-free, though. Any miscalculated or wrongly-transcribed journal entry in the ledger can
cause an incorrect trial balance. It is best to look out for errors early, and correct them on the
ledger instead of waiting for the trial balance at the end of the fiscal year.

● Financial statements
The next, and probably the most important, step in bookkeeping is to generate financial
statements. These statements are prepared by consolidating information from the entries you
have recorded on a day-to-day basis. They provide insight into your company’s performance
over time, revealing the areas you need to improve on. The three major financial reports that
every business must know and understand are the cash flow statement, balance sheet, and
income statement.

● The cash flow statement

The cash flow statement is exactly what its name suggests. It is a financial report that tracks
incoming and outgoing cash in your business. It allows you (and investors) to understand how
well your company handles debt and expenses. By summarizing this data, you can see if you are
making enough cash to run a sustainable, profitable business.

● The balance sheet

The balance sheet reports a business’ assets, liabilities, and shareholder’s equity at a given point
in time. In simple words, it tells you what your business owns, lowes, and the amount invested
by shareholders. However, the balance sheet is only a snapshot of a business’ financial position
for a particular date. It must be compared with balance sheets of other periods as well. The
balance sheet allows you to understand the liquidity and financial structure of your business
through analytics like current ratio, asset turnover ratio, inventory turnover ratio, and debt-to-
equity ratio.

● The income statement

The income statement, also called the profit and loss statement, focuses on the revenue gained
and expenses incurred by a business over time. There are two parts in a typical income
statement. The upper half lists operating income while the lower half lists expenditures. The
statement tracks these over a period, such as the last quarter of the fiscal year. It shows how the
net revenue of your business is converted into net earnings which result in either profit or loss.
The income statement does not focus on receipts or cash details.

● Bank reconciliation
Bank reconciliation is the process of finding congruence between the transactions in your bank
account and the transactions in your bookkeeping records. Reconciling your bank accounts is an
imperative step in bookkeeping because, after everything else is logged, it is the last step to
finding discrepancies in your books. Bank reconciliation helps you ensure that there is nothing
amiss when it comes to your money.

Bank reconciliation is a must because it:

o Provides the exact financial situation of your company
o Tracks cash flow accurately

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o Helps detect fraud or bank errors

Generally Accepted Recordkeeping Principles is a framework for managing records in a way

that supports an organization's immediate and future regulatory, legal, risk mitigation,
environmental and operational requirements.

The framework, which is also known as simply the Principles, has eight precepts for creating
information governance best practices:

• Principle of Accountability - An organization shall assign a senior executive who will oversee a
recordkeeping program and delegate program responsibility to appropriate individuals, adopt
policies and procedures to guide personnel and ensure program audit ability.

• Principle of Transparency - The processes and activities of an organization’s recordkeeping

program shall be documented in an understandable manner and be available to all personnel
and appropriate interested parties.

• Principle of Integrity - A recordkeeping program shall be constructed so the records and

information generated or managed by or for the organization have a reasonable and suitable
guarantee of authenticity and reliability.

• Principle of Protection - A recordkeeping program shall be constructed to ensure a reasonable

level of protection to records and information that are private, confidential, privileged, secret, or
essential to business continuity.

• Principle of Compliance - The recordkeeping program shall be constructed to comply with

applicable laws and other binding authorities, as well as the organization’s policies.

• Principle of Availability - An organization shall maintain records in a manner that ensures timely,
efficient, and accurate retrieval of needed information.

• Principle of Retention - An organization shall maintain its records and information for an
appropriate time, taking into account legal, regulatory, fiscal, operational and historical
requirements.

• Principle of Disposition - An organization shall provide secure and appropriate disposition for
records that are no longer required to be maintained by laws and organizational policies.

Bookkeeping & Accounting Differences:

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Bookkeeping is the recording of financial transactions, and is part of the process of accounting in
business and other organizations. It involves preparing source documents for all transactions,
operations, and other events of a business.

In financial parlance, the terms bookkeeping and accounting are almost used interchangeably. While
bookkeeping is all about recording of financial transactions, accounting deals with the interpretation,
analysis, classification, reporting and summarization of the financial data of a business.

Accounting is the process by which a company's financials are recorded, summarized, analyzed,
consulted and reported on. Bookkeeping is the recording part of this process, in which all of the
financial transactions of the business (consisting of income and expenses) are entered into a
database.

Bookkeeping Example 1
Joe purchased a car worth $50,000. He made payment for the same from his bank A/c. The financial
transaction is recorded as follows:

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Analysis: In this case, Joe purchased a car by making a payment of $50,000. In double-entry, both the
asset bought (i.e.) Car has been added, and the corresponding reduction from the bank balance has
been recorded entirely.

Bookkeeping Example 2
Hannah purchased raw materials for her business for $5,000. She paid $2,000 in cash, and the
remaining $3,000 shall be paid after the credit period of 30 days.

After 30 days, Hannah paid the balance of $3,000 to the vendor.

Analysis: Here, the purchase of raw material for $5,000 is recorded, with the cash payment of
$2,000, and trade payables of $3,000 are captured. The double-entry system helps to track all the
credit transactions and helps us to know the fund requirement of the business as the credit
transactions need to be settled after the due date. It acts as a check for the cash flow position of the
business.

Accounting Example 1
If an owner of a well set up business invests the money taken from the business (assume $20,000)
into a newly started restaurant business, what should the accounting transaction look like?

Solution:
Since he takes the money out of business for investing, the business owes him money as a liability.
Addressing the accounting equation, Assets = Liabilities + Equity, the money will flow from the Equity
side, and a similar amount will increase the Asset value since investment has been done (asset
created).
Now, if he takes a $10,000 loan from a small bank to invest in the restaurant business, what values
should he write in the books? He will have to increase the liability (signified by a loan) and increase
the assets further.
Liabilities go up by $10,000, and assets also go up by $10,000

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Accounting Example 2
A new business owner opened operations in a new region. His accounting team handed him over a
list of quarterly transactions that were carried out:

Jan 01, 2020 Rental expenses $20,000 Advance payment

for 1 month

Jan 12, 2020 Electrical expenses $4,000

Jan18, 2020 Salaries of new employees $25,000 Salaries to be paid

on the 1st of next
month

Jan20, 2020 Marketing expenses $8,000 $4,000 paid in cash

and $4,000 next
month

Jan24, 2020 Purchase of inventory $30,000 Paid in full

Solution:
The following journal entries will be made in the book of accounts:

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Important points to note while dealing with accounting transactions:

● Every accounting transaction should follow the rules of accounting, i.e. the basic tenets of
accounting ingrained in the accounting equation. The equation should hold every time an
accounting transaction is carried out, which serves as the basis for further bookkeeping, viz.
journal entries and balance sheet.
● Assets are any resources that generate revenues for the company; liabilities are obligations
that the company or business have in due process of raising or operating assets; equity is the
residual interest of shareholders in the company. Thus, it is important to note that
understanding these principles helps maintain accounting whilst performing transactions.
● Revenues and profits, expenses and losses are key elements that businesses encounter in
day-to-day accounting and transactions. These items should be recorded, irrespective of
their nature and size of the transaction, for audit and regulatory purposes.
● Accounting transactions and their prudent recording (bookkeeping) are dependent on
accounting standards.
o IFRS – International Financial Reporting Standards, regulated by International
Accounting Standards Board (IASB)
o US GAAP – Generally Accepted Accounting Principles (United States), regulated by
Financial Accounting Standards Board (FASB)

Notes
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Exercise (C5)
1) What are the benefits of PMMY?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

2) What is the benefit of PMEGP?

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……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

3) What is BEP and its importance?

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

……………………………………………………………………………………………………………………………………………….

4) Mention 2 difference between Bookkeeping and Accounting?

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Chapter 6: Evaluation & Assessment

Q1. Investment can be defined as

A) Person’s dedication to purchasing a house or flat
B) Use of capital on assets to receive returns
C) Usage of money on a production process of products and services
D) Net additions made to the nation’s capital stocks
Answer: B

Q2. The concept of Financial management is

A) Profit maximization
B) All features of obtaining and using financial resources for company operations
C) Organization of funds

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D) Effective Management of every company

Answer: B

Q3. What is the primary goal of financial management?

A) To minimize the risk
B) To maximize the owner’s wealth
C) To maximize the return
D) To raise profit
Answer: B

Q4. GST is a consumption of goods and service tax based on.

A) Development
B) Dividend
C) Duration
D) Destination
Answer: D

Q5. The finance manager is accountable for.

A) Earning capital assets of the company
B) Effective management of a fund
C) Arrangement of financial resources
D) Proper utilization of funds
Answer: C

Q6. The market value of the shares is decided by

A) The investment market
B) The government
C) Shareholders
D) The respective companies
Answer: A

Q7. The capital budget is associated with.

A) Long terms and short terms assets
B) Fixed assets
C) Long terms assets
D) Short term assets
Answer: C

Q8. CAPM stands for.

A) Capital asset pricing model.
B) Capital amount printing model.
C) Capital amount pricing model.
D) Capital asset printing model.
Answer: A

Q9. What does financial leverage measure?

A) No change with EBIT and EPS
B) The sensibility of EBIT with % change with respect to output
C) The sensibility of EPS w.r.t % change in the EBIT level
D) % variation in the level of production
Answer: C

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Q10. From the below-mentioned items which are financial assets?

A) Machines
B) Bonds
C) Stocks
D) B and C
Answer: D

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