BANKING

Bank
A bank is a financial institution licensed to
receive deposits and make loans. Banks may
also provide financial services, such as wealth
management, currency exchange and safe
deposit boxes. There are two types of banks:
commercial/retail banks and investment
banks. In most countries, banks are regulated
by the national government or central bank.
 Banking
Banking Company is one which transacts the
business of banking which means the
accepting for the purpose of lending or
investment of deposits money from the public
repayable on demand or otherwise and
withdrawable by cheque, draft, order or
otherwise.
 Retail Banking
Retail banking, also known as consumer
banking, is the typical mass-market banking in
which individual customers use local branches
of larger commercial banks. Services offered
include savings and checking accounts,
mortgages, personal loans, debit/credit cards
and certificates of deposit (CDs). In retail
banking, the focus is on the individual
consumer.
 Commercial Banking
A commercial bank is a financial institution that
provides various financial service, such as
accepting deposits and issuing loans. Commercial
bank customers can take advantage of a range
of investment products that commercial banks
offer like savings accounts and certificates of
deposit. The loans a commercial bank issues can
vary from business loans and auto loans to
mortgages.
Functions of Banking
 Accepting of Deposits
1) Savings Deposit
A savings account is an interest-bearing deposit
account held at a bank or another financial institution
that provides a modest interest rate. Banks or financial
institutions may limit the number of withdrawals you
can make from your savings account each month, and
they may charge fees unless you maintain a certain
average monthly balance in the account. In most cases,
banks do not provide checks with savings accounts.
2) Bank Deposit
Bank deposits consist of money placed into banking institutions
for safekeeping. These deposits are made to deposit accounts such
as savings accounts, checking accounts and money market
accounts. The account holder has the right to withdraw deposited
funds, as set forth in the terms and conditions governing the
account agreement.
The deposit itself is a liability owed by the bank to the depositor,
and the word refers to this liability rather than to the actual funds
that have been deposited. When someone opens a bank account
and makes a cash deposit, he surrenders legal title to the cash, and
it becomes an asset of the bank. In turn, the account is a liability to
the bank.There are several different types of deposit accounts
including current accounts, savings accounts, call deposit accounts,
money market accounts and certificates of deposit (CDs).
3)Current account
A current account, also called a demand account,
is a basic checking account. Consumers deposit
money which they can withdraw as desired on
demand. These accounts often allow the account
holder to withdraw funds using bank cards,
checks or over-the-counter withdrawal slips. In
some cases, banks charge monthly fees for
current accounts, but they may waive the fee if
the account holder meets other requirements
such as setting up direct deposit or making a
certain number of monthly transfers to a savings
account.
4) Term Deposit or Fixed Deposit
A term deposit is a deposit held at a financial
institution that has a fixed term. These are generally
short-term with maturities ranging anywhere from a
month to a few years. When a term deposit is
purchased, the lender (the customer) understands that
the money can only be withdrawn after the term has
ended or by giving a predetermined number of days
notice. These types of financial products are sold by
banks, thrift institutions and credit unions. In return,
financial institutions are more likely to pay higher
interest rates to the lender, most institutions will offer
fixed rates
5) Certificate of Deposits
A certificate of deposit (CD) is a savings certificate with a
fixed maturity date, specified fixed interest rate and can be
issued in any denomination aside from minimum
investment requirements. A CD restricts access to the funds
until the maturity date of the investment. CDs are generally
issued by commercial banks.
A certificate of deposit is a promissory note issued by a
bank. It is a time deposit that restricts holders from
withdrawing funds on demand. A CD is typically issued
electronically and may automatically renew upon the
maturity of the original CD. When the CD matures, the
entire amount of principal as well as interest earned is
available for withdrawal.
6) Recurring Deposit
Recurring Deposit is a special kind of Term Deposit offered by banks
in India which help people with regular incomes to deposit a fixed
amount every month into their Recurring Deposit account and earn
interest at the rate applicable to Fixed Deposits.
Recurring Deposit schemes allow customers with an opportunity to
build up their savings through regular monthly deposits of fixed
sum over a fixed period of time. Minimum Period of RD is 6 months
and maximum is 10 years.

Taxation of Recurring Deposit

Tax Deducted at Source ( TDS ) is applicable on RDs. If interest
earned on recurring deposits exceeds Rs. 10,000 a year, TDS at the
rate of 10 per cent would be deducted by the bank. Income tax is to
be paid on interest earned from a Recurring Deposit at the rate of
tax slab of the RD holder. Investors with no taxable income will have
to submit Form 15G to avoid TDS on both recurring deposits and
fixed deposits.
 Advancing of Loans
1) Overdraft
An overdraft is an extension of credit from a
lending institution when an account reaches zero.
An overdraft allows the individual to continue
withdrawing money even if the account has no
funds in it or not enough to cover the withdrawal.
Basically, overdraft means that the bank allows
customers to borrow a set amount of money
 2) Loan
• A loan is the act of giving money, property or other material
goods to another party in exchange for future repayment of
the principal amount along with interest or other finance
charges. A loan may be for a specific, one-time amount or can
be available as an open-ended line of credit up to a specified
limit or ceiling amount.
• The terms of a loan are agreed to by each party in the
transaction before any money or property changes hands. If
the lender requires collateral, that is outlined in the loan
documents. Most loans also have provisions regarding the
maximum amount of interest, as well as other covenants such
as the length of time before repayment is required.
• Loans can come from individuals, corporations, financial
institutions, and governments. They offer a way to grow the
overall money supply in an economy as well as open up
competition and expand business operations. The interest and
fees from loans are a primary source of revenue for many
financial institutions such as banks, as well as some retailers
through the use of credit facilities.
• Loans can be secured or unsecured. Mortgages and car loans are
secured loans, as they are both backed or secured by collateral.
Loans such as credit cards and signature loans are unsecured or not
backed by collateral. Unsecured loans typically have higher interest
rates than secured loans, as they are riskier for the lender. With a
secured loan, the lender can repossess the collateral in the case of
default. However, interest rates vary wildly depending on multiple
factors
• Loans can also be described as revolving or term. Revolving refers
to a loan that can be spent, repaid and spent again, while term
refers to a loan paid off in equal monthly installments over a set
period called a term. A credit card is an unsecured, revolving loan,
while a home equity line of credit is a secured, revolving loan. In
contrast, a car loan is a secured, term loan, and a signature loan is
an unsecured, term loan
 3) Cash Credit
Cash credit is a short-term source of finance. Under cash credit, the
bank offers its customer to take a loan up to a certain limit. Cash
credit is also known as bank overdraft.
• Features of Cash Credit:
1. This loan is given to meet the working capital requirements of a
company.
2. It is given against a collateral security.
3. Interest is charged only on the amount of loan taken by the
customer and not on the amount of credit sanctioned.
• Advantages of Cash Credit:
i. It is an important source of working capital financing.
ii. Cash credit can be obtained very easily and quickly.
iii. Interest is charged only on the utilized amount.
• Disadvantages of Cash Credit:
i. The rate of interest charged by loan on cash credit is very high.
ii. Such loan is granted by bank on the basis of company’s turnover,
its financial status, value of inventory, etc. So it is difficult for new
and financially weak companies to obtain cash credit.
iii. For banks, cash credit disturbs their credit planning.
4) Discounting Bills
While discounting a bill, the Bank buys the bill
(i.e. Bill of Exchange or Promissory Note)
before it is due and credits the value of the bill
after a discount charge to the customer's
account. The transaction is practically an
advance against the security of the bill and the
discount represents the interest on the
advance from the date of purchase of the bill
until it is due for payment.
Agency Services