UNIVERSITY OF MUMBAI

LALA LAJPAT RAI COLLEGE OF COMMERCE &

ECONOMICS

MAHALAXMI, MUMBAI-400034
TELEPHONE: 23548240/41

A PROJECT ON
“FUNCTIONS OF COMMERCIAL BANKS”

SUBMITTED BY
BHAVIN HARIYA

PROJECT GUIDE: PROF.VIJAYA GANGAL

SEMESTER –V
BACHELOR OF COMMERCE (BANKING & INSURANCE)

SUBMISSION DATE:
EXAM SEAT NO:

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 ACKNOWLEDGEMENT

With great pleasure I express my gratitude to Prof.Vijaya Gangal, Lala

Lajpat Rai College of Commerce & Economics and I am very thankful to

her for being my inspiration in the completion of my project. She gave me

precious time and valuable advice for this project.

I am thankful to the college library that gave me full support by providing

different types of information resources. I am also thankful to my friends

who supported me throughout the project. I also pay in record that, I am very

much thankful to my parents who always inspired me to do this work and

complete in time.

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 DECLARATION

I, Mr. Bhavin Hariya, student of Lala Lajpat Rai College of Commerce &

Economics T.Y.B.B.I. (Sem-V) hereby declare that, I have completed this

project on “FUNCTIONS OF COMMERCIAL BANKS” in the academic

year 2010-2011. This project submitted by me is true and my own work.

This work is not submitted earlier.

------------------------

Signature of student

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 CERTIFICATE

I, Prof. Vijaya Gangal of Lala Lajpat Rai College of Commerce &

Economics hereby to certify that Mr. Bhavin Hariya, student of T.Y.B.B.I.

(Sem-V) have completed her project on “FUNCTIONS OF COMMERCIAL

BANKS” in the academic year 2010-2011.

This project submitted is true and original copy to best of my knowledge.

--------------------------------- ------------------------------------

Signature of Project Co-ordinator Signature of External Examiner

(Prof.Vijaya Gangal)

-------------------------------------

Signature of Principal

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 EXECUTIVE SUMMARY

Banks have developed around 200 years ago. The natures of banks have

changed as the time has changed. The term bank is related to financial

transactions. It is a financial establishment which uses, money deposited by

customers for investment, pays it out when required, makes loans at interest

exchanges currency etc.

The development of banking is evolutionary in nature. A Bank performs a

multitude of functions and services which cannot be put into a single

definition. A bank may mean different things to different people. For some it

is a storehouse of money, for others as institution of funding for Finance and

yet for many others bank is a depository for their savings.

Today in English bank is largely understood as an institution that accepts

money as a deposit to further lend it out for profit.

The Indian banking has evolved in its present form from the days of the

British Raj. The structure and the pattern of banking are largely based on the

British Banking System.

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Commercial banks are an organization which normally performs certain

financial transactions. It performs the twin task of accepting deposits from

members of public and make advances to needy and worthy people form the

society. When banks accept deposits its liabilities increase and it becomes a

debtor, but when it makes advances its assets increases and it becomes a

creditor. Banking transactions are socially and legally approved. It is

responsible in maintaining the deposits of its account holders.

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 CHAPTER NO. TOPIC PAGE NO.

I Introduction 9-10
II What is a Commercial Bank 11-12
III Objectives of Commercial Banks 13
IV Functions of Commercial Banks 14
IV 1 Primary Functions 15
IV 1 A Receiving Deposits 15
IV 1 A (i) Current Account 16-17
IV 1 A (ii) Savings Banks Account 18-19
IV 1 A (iii) Fixed Deposit Account 20-21
IV 1 A (iv) Recurring Deposit Account 22-23
IV I B Advancing Loans 24
IV 1 B (i) Overdraft 25
IV 1 B (ii) Cash Credit 26-27
IV 1 B (iii) Loans 28-29
IV 2 Secondary Functions 30
IV 2 A Agency Services 30-31
IV 2 B General Utility Services 32
IV 2 B (i) Safe Deposit Vault 33
IV 2 B (ii) Collection of Cheques, Bills & Promissory 33

Notes
IV 2 B (iii) Issuing Letter of Credit 34
IV 2 B (iv) Bank Drafts 35-36
IV 2 B (v) Automated Teller Machine 37-38
IV 2 B (vi) Debit Card 39-41
IV 2 B (vii) Credit Card 42-44
IV 2 B (viii) Tele Banking 45-47
IV 2 B (ix) Internet Banking 48-50

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 CHP I: INTRODUCTION

Commercial banks are the oldest and fastest growing banks in India. They

are also most important depositories of public savings and the most

important lenders. Commercial banking in India is a unique system in the

world. The commercial banking in India has social control and public

ownership. The operations of banks have been determined by Lend Bank

Scheme, Differential Rate of Interest Scheme, Credit Authorized Scheme,

inventory norms and lending system prescribed by the authorities.

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Commercial banks are simple business organizations which provide various

types of financial services to customers in return for payment in one form or

another such as interest, discount, commission, fees, etc. their objective is to

make profits, commercial banks includes schedule, non-schedule, Indian,

foreign, public sector, private sector and Regional Rural Banks. Profitability,

liquidity, safety and social welfare are the, major principles which

commercial banks strive to incorporate in their working. The Indian Banking

system is of branch banking type and it is characterized by excessive

concentration of business in a small number of big public sector banks.

There has been a tremendous growth of commercial banks during the past 40

years. There has been phenomenal increase in bank deposits and bank

branches. Banks accepts various types of deposits such as demand, saving,

fixed and call. Individuals own more than 3/4th of these deposits. The

commercial banks have developed innovative approaches such as

consortium, single window and participatory lending. Banking business is

subject to market seasonal variations. The massive quantative expansion has

not been accompanied by quick, reliable and better customer service.

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 CHP II: What is a Commercial Bank?

Commercial banks are banking institutions that are geared more toward the

lending of money to customers, rather than focusing on generating or raising

money. A commercial bank accepts deposits to personal and corporate

accounts, and then uses the combined strength of the deposits to finance

loans for individuals and businesses. This is in contrast to an investment

bank, which focuses on generated revenue through investments.

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The commercial bank will extend a number of different types of loans to

customers. For individuals, a commercial bank may loan funds for the

purchase of personal property, such as vehicles or homes.

A commercial bank may also extend a personal loan to an individual for

home improvements or to consolidate a number of personal debt

instruments. Loans of this type are usually extended with interest included,

allowing the bank to cover the costs associated with extending the loan.

Business clients may also obtain loans from a commercial bank. The type

of business loans that would be offered by a commercial institution would

include funds to finance a payroll or to purchase operating supplies.

However, if the funds were needed to effect a corporate realignment or

restructuring, investment banks would more likely finance that type of

business loan.

A commercial bank will also offer a wide range of savings programs for

customers. Along with standard savings accounts, the commercial bank may

also offer interest bearing checking accounts, certificates of deposit, and

other savings strategies that are considered to provide a small but consistent

return in exchange for doing business with the bank.

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Banking Company of India has been defined in the Banking Companies Act,

1949 as, “one which transacts the business of banking which means the

accepting for the purpose of lending or investment of deposits of money

from the public, repayable on demand or otherwise and withdrawable

cheques, draft, order or otherwise.”

CHP III: Objectives of Commercial Banks

The main objective of a commercial bank is to generate profitability for its

ownership by providing quality based products and services to the residents

of the communities and regions that they represent. Aside from offering

traditional banking products, commercial banks must be highly competitive

and provide specialized products.

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Commercial banks are to profess higher profitability by maintaining circular

and efficient flow of amount of money deposited by the customers and the

lenders. Commercial bank contributes to the economic cycle by keeping the

money circulation among households, government and corporate businesses.

The commercial banks lend money to the financial agents through their

various products and services by earning interest income on the borrowed

money. Commercial banks design their short permanent status and long term

loans and other products to cater to the need of customers while enhancing

their own returns. Their objective is to attract more customers and build

profitable relationships next to the new and existing customers.

CHP IV: Functions of Commercial Banks

Modern Commercial Banks perform a large number of functions and

services to industry and commerce. It is not possible t make an exhaustive

list of its functions and services as they are diverse, varied and ever-

expanding. The functions of a bank are increasing day by day depending

upon the environment prevailing in the country. There cannot be a standard

pattern of banking functions that can hold good for all the countries, or even

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for the same country at different periods of time. It is not surprising,

therefore that banks in developing countries perform many such functions as

to suit their particular requirements and have branched out into new areas.

Banks in modern times are doing a large number of non-traditional

functions. They have thrown their conservative approach and are doing their

best to help all sectors of the economy by adopting progressive and

enlightened approach. The functions and services rendered by modern banks

can be grouped under the following heads:

A) Primary Functions.

B) Secondary Functions.

CHP IV 1: PRIMARY FUNCTIONS

Broadly speaking there are two functions which comes under this category:

1) Receiving Deposits

2) Advancing Loans

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 CHP IV 1 A: Receiving Deposits:

This is an important function because banks mainly depend on the funds

deposited with them by the public. By offering various types of deposit

accounts, banks mobilize the savings of the community. A bank’s financial

strength is measured by its ability to attract the various types of deposits.

People who have surplus money deposit the same with a bank for safe

keeping. The commercial bank receives deposits on the following four types

of accounts:

a) Current Account.

b) Savings Bank Account.

c) Fixed Deposit Account.

d) Recurring Deposit Account.

CHP IV 1 A i: CURRENT ACCOUNT

Current Account is primarily meant for businessmen, firms, companies,

public enterprises etc. that have numerous daily banking transactions.

Current Accounts are cheque operated accounts meant neither for the

purpose of earning interest nor for the purpose of savings but only for

convenience of business hence they are non-interest bearing accounts. In a

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Current Account, a customer can deposit any amount of money any number

of times. He can also withdraw any amount as many times as he wants, as

long as he has funds to his credit. Generally, a higher minimum balance as

compared to Savings Account is required to be maintained in Current

account.

The following are the important features of current account:

i) Current account indicates deposits always payable on demand. Hence they

are called demand deposits.

ii) There is no restriction on the number and amount of withdrawals from

this account.

iii) Banks insist on the maintenance of certain minimum balance on current

account. If the balance goes below this amount, the bank has a right to close

that account

iv) Generally no interest is paid on money deposited in this type of account.

Recently, banks have started giving lower interest on this account.

v) Overdraft facilities are given in case of current accounts only.

vi) Current account suits the requirements of businessmen, joint stock

companies, institutions, societies, public authorities and public corporations

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etc. whose banking transactions happen to be numerous on every working

day.

vii) All banking services are made available to current account holders are

reasonable service charges.

viii) Banks are given full freedom to decide the rules and regulations

regarding the operation of current account.

CHP IV 1 A ii: SAVINGS BANK ACCOUNT

Savings Bank Accounts are meant to promote the habit of saving among the

citizens while allowing them to use their funds when required. The main

advantage of Savings Bank Account is its high liquidity and safety. On top

of that Savings Bank Account earns moderate interest too. The rate of

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interest is decided and periodically reviewed by the Government of India.

Presently, the rate of interest is 3.5% compounded half yearly.

The following are the main features of this account:

i) As the name indicates, these accounts are opened for the purpose of

mobilizing savings. These accounts are meant to encourage savings and to

develop the habit of thrift. It aims at checking extravagance of the peoples.

This account may be joint or single.

ii) Though money can be deposited in this account as often as the depositor

wishes, it cannot be withdrawn more that twice or thrice a week. At present

25 withdrawals are permitted quarterly by most of the banks. Rules in this

regard may vary from bank to bank and from time to time.

iii) This account can be opened by depositing nominal amount.

iv) The rate of interest payable by the banks on this account is generally

prescribed by the Central Bank of the country. It is generally 4% to 5%.

v) Money from this account can be withdrawn by cheques or by using

bank’s withdrawal slips.

vi) No limit is prescribed in India for the maximum amount that may be held

in a saving bank account. But banks in India allow interest on a maximum

balance of Rs. One lakh only in one account.

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vii) Savings account is not given overdraft facilities like current account.

viii) This account is more suitable to salary earners, wages earners and

persons of limited means.

ix) Usual banking services are provided to savings bank account holders.

This account is meant for all those who want to build up personal savings for

meeting emergencies and contingencies.

CHP IV 1 A iii: FIXED DEPOSIT ACCOUNT

A Fixed Deposit also known as a Term Deposit is an account which allows

us to deposit money for a fixed time period. When the deposit period

elapses, the depositors get interest on the amount deposited. The fixed

deposit interest rates can be as high as 9.5% or more.

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The following are the features of fixed deposit account:

i) Fixed deposits are deposits received for a fixed period specified in

advance. No withdrawal is allowed during this period. Therefore they are

called time deposits.

ii) The depositor is neither given a cheque book nor a pass book. Withdrawal

of interest or principle through cheque is not permitted. The depositor gets a

fixed deposit receipt, acknowledging the receipt o a sum of money specified

therein.

iii) The fixed deposit receipt is non-transferable. It is not a saleable asset.

iv) The depositor gets attractive rate of interest on money deposited in this

account. The rate of interest allowed varies with the period. The longer the

period of deposit, the higher the rate of interest. Interest is paid half-yearly.

v) If the depositor is in need of money before the due date, he can borrow

from the same bank against the security of his fixed deposit receipt. Of

course, he has to pay a slightly higher rate of interest. In India, the directive

of the Reserve Bank of India requires the banks to charge a minimum of 1%

above the rate payable on such deposits.

vi) Individuals, firms or companies with surplus money may invest their idle

funds profitably in this account. The person who want safety of funds and

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steady return, deposit money in this account. These deposits are called

earning assets.

vii) Some of the leading banks transfer funds in excess of some minimum

amount from Current Account to Time Deposit so that the accountholder

gets income on the same.

viii) According to recent Reserve Bank circular, the Time deposits can be

kept even for a period of seven days for the amount in excess of 15 lakhs

and above.

CHP IV 1 A iv: RECURRING DEPOSIT ACCOUNT

Under a Recurring Deposit account (RD account), a specific amount is

invested in bank on monthly basis for a fixed rate of return. The deposit has

a fixed tenure, at the end of which the principal sum as well as the interest

earned during that period is returned to the investor. Recurring Bank

Account provides the element of compulsion to save at high rates of interest

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applicable to Term Deposits along with liquidity to access those savings any

time. Since a recurring deposit offers a fixed rate of return, it does not

provide protection against inflation.

The notable features of this type of account are as follows:

i) This type of account is the latest innovation with most of the banks in

India. Banks have introduced this scheme with the object of affording

convenience and incentive to small depositors for savings.

ii) A depositor opening a recurring deposit account is required to deposit an

amount chosen by him, generally a multiple of Rs. 5/- or Rs. 10/- in his

account every month for a period selected by him. The period of recurring

deposit varies from bank to bank generally between two to ten years.

iii) The rate of interest given on recurring account stands favorably as

compared with the savings bank account because the former partly

resembles the fixed deposit account.

iv) As in savings bank account, the customer is furnished a passbook. The

passbook ordinarily is to accompany each installment as and when it falls

due. The accountholder can give a standing order to deduct installments

from his savings bank account in the bank.

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v) At the expiry of the period, the depositor gets a lump sum representing the

installments and handsome interest on his savings.

vi) In case depositor needs money before the due date he may borrow upto

90% of the amount in the account at the prevailing rate of interest.

vii) Recurring deposit accounts are transferable from one branch to another

without charge.

viii) The recurring deposit account can be opened by any person, more than

one person jointly or severally, by a guardian in the name of a minor and

even by a minor.

CHP IV 1 B: Advancing Loans

The money that is received by banks by way of deposits is utilized for

granting loans and advances to worthy borrowers. Apart from playing a vital

role in the development of the economy, banking is a business with a motive

to earn profit. The successful operation in this function forms the main

source of income i.e. profit of the bank. Banks advances enable commerce

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and industry to meet their short term and long term requirements of funds. In

recent years, the lending attitude of banks has undergone a marked change.

Now, advances granted by banks are expected to develop all sectors of the

economy.

The strength of a bank is primarily judged by the soundness of its advances.

The advances by banks may be made in any one or more of the following

forms:

a) Overdrafts.

b) Cash Credit.

c) Loans.

CHP IV 1 B i: OVERDRAFTS

An overdraft occurs when withdrawals from a bank account exceed the

available balance. In this situation a person is said to be "overdrawn".

If there is a prior agreement with the account provider for an overdraft

protection plan, and the amount overdrawn is within this authorised

overdraft limit, then interest is normally charged at the agreed rate. If the

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balance exceeds the agreed terms, then fees may be charged and higher

interest rate might apply.

The following are the distinctive features of overdrafts:

i) This facility is given only to current accountholders.

ii) Here a current accountholder is permitted by the banker to draw more

than what stands to his credit.

iii) The banker may take some collateral security or may grant such advance

on the personal security

iv) The customer is permitted to withdraw the amount as and when he needs

and to make deposit in his account as and when it is convenient.

v) Interest is charged on the amount overdrawn and for a short period it is

utilized.

CHP IV 1 B ii: CASH CREDIT

This account is the primary method in which Banks lend money against the

security of commodities and debt. It runs like a current account except that

the money that can be withdrawn from this account is not restricted to the

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amount deposited in the account. Instead, the account holder is permitted to

withdraw a certain sum called "limit" or "credit facility" in excess of the

amount deposited in the account. Cash Credits are, in theory, payable on

demand. These are, therefore, counter part of demand deposits of the Bank.

The following are the notable features of the cash credit arrangements:

i) Under this scheme, the banker specifies a limit for each customer upto

which the customer is permitted to borrow against some security or

guarantee.

ii) The customer is allowed to withdraw from this account as and when he

needs money and deposits in this account any surplus that he has

iii) Generally the customer is required to provide tangible asset as security to

cover the amount borrowed.

iv) For availing of the cash credit facility it is not necessary to have an

account in a bank.

v) The advances sanctioned under this arrangements are technically

repayable on demand, but in practice they ‘roll over’ a period of time. It is a

seasonal borrowing renewed from time to time.

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vi) This method of borrowing is very popular in India, accounting for about

70 per cent of the total bank credit. Cash credit facility is regularly granted

to commercial and industrial concern for longer periods.

CHP IV 1 B iii: LOANS

A loan is a type of debt. Like all debt instruments, a loan entails the

redistribution of financial assets over time, between the lender and

the borrower. In a loan, the borrower initially receives or borrows an amount

of money, called the principal, from the lender, and is obligated to pay

back or repay an equal amount of money to the lender at a later time.

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Typically, the money is paid back in regular installments, or partial

repayments; in an annuity, each installment is the same amount.

The following are the distinctive features of loan facility granted by a bank:

i) A fixed amount sanctioned for a definite period of time is called loan.

ii) Loans are repayable at one time or in installments as agreed.

iii) Interest is charged on the total amount of the loan sanctioned whether it

is utilized or not.

iv) Loans are given on the security of shares, Government securities, life

insurance policies, gold and other assets. In suitable cases, unsecured

advances are also granted by banks.

v) There are different types of loans. For instance, term loans, participation

loans and personal loans.

vi) Banks charge a slightly lower rate of interest on loan account than on

overdraft and cash credit, other things being equal.

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 CHP IV 2: SECONDARY FUNCTIONS

These secondary functions can be classified into two main divisions:

1) Agency Services.

2) General Utility Services

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 CHP IV 2 A: AGENCY SERVICES

The agency services are provided to regular customers of the bank. While

providing agency services, banker acts as the agent of the customer. Some of

the important services rendered to the clients are given below:

a) Payment of insurance premium, subscriptions and contributions etc of

societies, clubs, associations etc which are of recurring nature.

b) Collection of salary and pension bills, dividend coupons and interest

payable on debentures and other securities

c) Transfer of funds of customers from one bank to another by means of

bank drafts, mail or telegraphic transfer.

d) Purchase and sale of stock, shares, debentures and other securities as per

instructions from the customers.

e) Collection and payment of cheques, bills and promissory notes.

f) Acting as attorney or representative of client.

g) Acting as a trustee, executor or administrator.

h) Acting as correspondents, agents or representative of their customers to

other banks or financial corporations.

i) Filing of income tax return

j) Collection of postal orders.

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 CHP IV 2 B: GENERAL UTILITY SERVICES

Some important utility services provided by commercial banks are:

a) Safe Deposit Vault

b) Collection of Cheques, Bills and promissory Notes

c) Issuing Letter of Credit

d) Bank Drafts

e) ATM

f) Debit Card

g) Credit Card

h) Tele-Banking

i) Internet Banking

CHP IV 2 B i: Safe Deposit Vault

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A bank undertakes the safe custody of the customer’s valuables and

documents by providing a safe deposit vault. These are kept in specially

constructed strong rooms. There are lockers available to the customer on a

nominal charge. There are two keys for each locker, one is given to the

customer and the other remains with the Bank Manager. The locker is

opened as well as closed by both the keys one after another. Customers can

keep custody. A register is maintained by the bank in which all the

particulars about the valuables and documents are recorded in it. Banks

provide the services of safe deposit vault on hire basis to the customers.

CHP IV 2 B ii:Collection of Cheques, Bills and promissory Notes

The customers deposit cheques, bills of exchange and promissory note into

their accounts with the banks. These instruments are collected by the bank

on behalf of their customers and credited to their accounts. These services

are provided by the cheques, bills and promissory notes issued on branches

out of the city are collected with some nominal charges for postage etc. this

is a very popular and essential service provided by the banks to their

customers.

CHP IV 2 B iii: Issuing Letter of Credit

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A letter of credit is a commercial instrument of assured payment. It is widely

used by the businessman for various purposes. The bank undertakes to make

payment to a seller on production of documents stipulated in the letter of

credit. It specifies as to when payment is to be made which may be either on

presentation of documents by the paying bank or at some future date

depending upon the terms stipulated in the letter. There are many parties

involved in the letter of credit. One is the applicant who is the buyer of

goods or importer of goods. He makes an application to a bank who issues

the letter of credit. The bank is known as issuing bank. The beneficiary is

named in the letter of credit who is the seller of goods or exporter. Other

banks are also involved in the transaction such as negotiating bank,

confirming bank and advising bank. There are different types of letter of

credit. This is a very important service provided by the banks specially for

the importers and exporters.

CHP IV 2 B iv: BANK DRAFTS

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A bank draft is an order from one branch to another branch of the same bank

to pay a specified sum of money to a person named therein or to his order. A

draft is always payable on demand. Banks issue drafts at the request of the

customers on their branches at the place of destination for remitting money

from one place to another place. Any person who wants to remit money has

to purchase a draft from the bank by paying the amount in advance to the

bank. The purchaser of the draft then sends the draft to the payee’s place of

residence by post or courier for the purpose of encashment at the drawee

branch of the bank. The bank issuing the draft charges some commission

depends upon the amount of the draft. The purchaser need not be a customer

of the bank.

The bank draft is like a bill of exchange payable on demand. In case the

draft is lost by a purchaser, he has to report to the issuing banker for loss of

the draft without any endorsement, the banker may safely refuse to pay the

amount of the draft. The bank should take all the precautions and payment of

the draft should be made only when the banker is fully satisfied about the

valid title of the holder. The banker should take an indemnity bond and then

issue a duplicate draft to the purchaser. The draft may be cancelled by the

bank if it is not delivered to the payee. When a bank draft is delivered to the

payee he acquires a right in the instrument, which cannot be set aside by the

34
‘stop-payment’ order issued by the purchaser. The bank issuing the draft

sends an advice to the drawee branch, intimating about the issue of the draft.

The drawee branch after verifying the signature of the authorized officials

makes the payment. However, the payment of the draft should not be refused

because of non-receipt of drawing advice.

CHP IV 2 B v: Automated Teller Machine (ATM)

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ATM is a channel of banking service to its customers. It’s traditional and

primary use is to dispense cash upon insertion of a plastic card and its

unique PIN i.e. Personal Identification Number. The banks issue ATM card

to their customers having current or savings account holding a certain

minimum balance in their accounts. ATM card is a plastic card with a

magnetic strip with the account number of the individuals. When the card is

inserted into the machine the sensing equipment of the machine identifies

the account holder and asks his PIN. It is a secret number which is known

only to the account holder.

If the PIN is matched, the ATM pops up a menu screen which allows the

user to transact almost all types of banking transactions, such as withdrawal

of cash, deposit of cash/cheques.

Following are the advantages of ATM:

1. ATM provides 24hour service; the customer can withdraw cash up to a

certain limit during 24hours. It is now called all time money facility.

2. It provides a great deal of convenience to customers. Most of the ATMs

are located at the convenient place and as such this facility is a boon to

customers. ATM machines are installed at suitable locations such as Airport,

Railway station, Residential colony, near big malls etc.

36
3. ATM facility also reduces pressure on bank staff. The bank staff is free

from the botheration of keeping large ready cash for withdrawal by people.

4. Here the work of deposition and withdrawal is handled by the machine.

The machines are perfect and provide accurate service. The human errors are

absent when operations are performed by machines.

5. Operations through machines provide a kind of privacy and secrecy to

banking business.

CHP IV 2 B vi: DEBIT CARD

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A debit card is a plastic card that provides an alternative payment method

to cash when making purchases. Functionally, it can be called an electronic

check, as the funds are withdrawn directly from either the bank account or

from the remaining balance on the card. In some cases, the cards are

designed exclusively for use on the Internet, and so there is no physical card.

In many countries the use of debit cards has become so widespread that their

volume of use has overtaken or entirely replaced the check and, in some

instances, cash transactions. Like credit cards, debit cards are used widely

for telephone and Internet purchases and, unlike credit cards, the funds are

transferred immediately from the bearer's bank account instead of having the

bearer pay back the money at a later date.

Debit cards may also allow for instant withdrawal of cash, acting as

the ATM card for withdrawing cash and as a check guarantee card.

Merchants may also offer cashback facilities to customers, where a customer

can withdraw cash along with their purchase.

Advantages & Disadvantages of Debit Card:

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Advantages of Debit Card:

1. No need to carry cash. Just about every merchant accepts the debit card

including the dollar store and some thrift shops. You do not need to worry

about losing cash or misplacing it in a pair of jeans only to find it two

months later. If your purse or wallet is stolen your money is safe since the

perpetrator would need your PIN number to access your funds.

2. You don't need to make a trip to the bank every time you need to

withdrawal money. You can use your card just about any where you go, and

if you need the cash you can access your money at an ATM machine any

time of day or night.

Disadvantages of Debit Card:

1. With a debit card you must keep accurate records. You must record each

transaction so you will know what your account balance is at all times. If

you do not keep records you run the risk of overdrawing your account which

will result in bank fees. Not to mention the embarrassment you will suffer at

the checkout line when your card is denied.

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2. If your child needs lunch money you can't just hand them the debit card.

You have to drive to the nearest ATM machine to access a few rupees to

send to school with your child.

CHP IV 2 B vii: CREDIT CARD

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A credit card is an instrument of payment. It is a source of revolving credit.

The cards are plastic cards issued by the banks to their customers. The name

of the customer, card number and expiry date are printed on the plastic

cards. Some banks also use the photograph of the customers on the credit

card. The cardholder can buy goods or services from various merchant

establishments where such arrangements exist. The card issuing bank makes

the payment to the supplier or seller. The outstanding amount on account of

use of the credit card is payable by the card holder to the bank over a

specific period which carries a fixed amount of interest. A debit card is a

payment card used to obtain cash, goods and services automatically debiting

the payments to the cardholder’s bank account instantly, in which credit

balance exists.

A credit card is more then a simple piece of plastic, it is first and foremost a

flexible payment tool accepted at 30 million locations worldwide, and if the

card balance is paid off every month, then no interest is charged on

purchases made so, essentially, short-term credit is granted without the

consumer paying any interest.

Some of the features of Credit Card are:

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1. Access to unsecured credit (no collateral required against amounts

charged).

2. Interest-free payment from time of purchase to the end of the billing

period

3. Instant payment of purchases, allowing for instant receipt of goods and

services

4. 24/7 access

5. Fraud protection

Advantages & Disadvantages of Credit Card:

Advantages of Credit Card:

1. Offer free use of funds, provided you always pay your balance in full, on

time.

2. Be more convenient to carry than cash.

3. Help you establish a good credit history.

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4. Provide a convenient payment method for purchases made on the Internet

and over the telephone.

5. Give you incentives, such as reward points, that you can redeem.

Disadvantages of Credit Card:

1. Cost much more than other forms of credit, such as a line of credit or a

personal loan, if you don't pay on time.

2. Damage your credit rating if your payments are late;

3. Allow you to build up more debt than you can handle;

4. Have complicated terms and conditions.

CHP IV 2 B viii: TELE BANKING

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Telephone banking is a service provided by a Commercial Banks, which

allows its customers to perform transactions over the telephone.

Most telephone banking services use an automated phone answering system

with phone keypad response or voice recognition capability. To guarantee

security, the customer must first authenticate through a numeric or

verbal password or through security questions asked by a live representative.

With the obvious exception of cash withdrawals and deposits, it offers

virtually all the features of an automated teller machine: account balance

information and list of latest transactions, electronic bill payments, funds

transfers between a customer's accounts, etc.

Usually, customers can also speak to a live representative located in a call

centre or a branch, although this feature is not always guaranteed to be

offered 24/7. In addition to the self-service transactions listed earlier,

telephone banking representatives are usually trained to do what was

traditionally available only at the

branch: loan applications, investment purchases and

redemptions, chequebook orders, debit card replacements, change of

address, etc.

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Banks which operate mostly or exclusively by telephone are known

as phone banks. They also help modernize the user by using special

technology.

Advantages & Disadvantages of Tele Banking:

Advantages of Tele Banking:

1. You may not have time to visit your bank every week and if your business

is located out of town, getting to a branch can be time consuming and

expensive. With telephone banking, your bank is on the other end of the line

whenever you need it.

2. You can manage your business account at any time, which is ideal if you

are busy during the day with running your business.

3.As well as the basics of running your business account – paying a bill,

transferring money, setting up a direct debit and so on – you may also be

able to apply for finance and make an appointment with your Bank Manager.

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4. Making payments by phone can simplify your banking – you don’t need

to confirm the payments in writing, and you can check all your transactions

against your statement when it arrives.

Disadvantages of Tele Banking:

1. The most common one would have to be the fact that not all banks and

building societies offer 24 hour telephone banking.

2. Telephone banking like online banking can seem impersonal, but like

online banking, if you use it on conjunction with your regular bank account

it can be a useful tool.

CHP IV 2 B ix: INTERNET BANKING

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Internet is a channel of service to banking customers. The access to account

information as well as transaction is offered through the world-wide-web

network of computers on the internet. Each account holder is provided with

a PIN similar to that of ATM or phone banking. The access to the account is

allowed to the customer upon a match of the account details and PIN entered

on the computer system. A higher level of security may be reached by an

electronic fingerprint. Transaction such as e-business, Railway-Air

Reservation, payment of bills, transfer of money can be carried out while

sitting in the house with the help of an internet.

The following is a list of the advantages of internet banking:

Easy to Set-Up: It is easy and fast to set up an internet bank account. All that

users have to do to create an online bank account is complete a short form

and then set the security features such as a password and username. Finally,

they just print and sign a form and send it in to the bank.

Fewer Costs: There are fewer costs associated with internet banking because

online banks do not have the overhead like traditional banks. Because there

are fewer costs, internet banks pass the savings on to consumers such as

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reduced service charges and increased interest rates for savings accounts.

They can even offer reduced lending rates for their loans.

Easy and Convenient online Bank Comparison: It is easy to research many

internet banks online allowing you to compare such features as interest rates,

available credit cards and their interest rates, FDIC bank rating, and terms

and interest rates of their loans. You can then pick the best internet bank that

meets your needs.

Easy Bank Account Monitoring: You can track your internet banking and

money 24 hours a day, 7 days a week. You can track such things as deposits,

clearing of checks, and your account balance. It allows you to keep your

account from going into the negative.

Maintain Accurate Financial Records: You can keep track of your financial

records by using software programs such as Microsoft Money or Quicken.

This will allow you to budget more efficiently and track your spending.

Bank Account Security: Along with bank internet security features, you have

the ability to monitor you account any time which helps to detect any

fraudulent activity. You will know immediately if someone has written a

check or withdrew money from your account. You will then immediately be

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able to start resolving the problem before there is too much damage to your

finances.

Convenient Banking Online: Traditional banking has always been slow.

With online banking, you will no longer have to stand in long lines to obtain

financial information about your account. As well, there is less paperwork

and applying for loans is faster, easier, and more convenient. You can even

transfer funds from one account to another in almost an instant and you can

carry out such investment tasks as bond exchanges, stock trades and other

investment activities.

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DEBIT CARD

CREDIT CARD

ATM CARD

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 CONCLUSION

What will the future of Indian banking looks like? Will the reform in

banking sectors face the same fate as in power and telecom? It is

increasingly evident that the economy offers opportunities but no security!

Therefore, the future will belong to those who develop good internal

controls, checks and balances and a sound market strategy. Business

Growth, Cost Efficiency and Evolution are therefore regarded as key drivers

which will have to be addressed.

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 BIBLIOGRAPHY

Principles and Practices of Banking and Insurance-

By P. K. Bandgar.

Organisation of Commerce and Management-

By N. G. Kale.

S. C. Karnavat.

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