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Banking Bibliography

ary.html Intro From Tum Definition From tum Types of Banks Central banks Tum page 11 Commercial Banks Commercial banks are organizations that normally perform 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. According to the Indian Banking Company Act 1949, "A banking company means any company which transacts the business of banking. Banking means accepting for the purpose of lending of investment of deposits of money from the public, payable on demand or other wise and withdraw able by cheque, draft or otherwise." Functions of commercial bank Primary Functions Commercial Banks performs various primary functions some of them are given below 1. Accepting Deposits : Commercial bank accepts various types of deposits from public especially from its clients. It includes saving account deposits, recurring account deposits, fixed deposits, etc. These deposits are payable after a certain time period. 2. Making Advances : The commercial banks provide loans and advances of various forms. It includes an over draft facility, cash credit, bill discounting, etc. They also give demand and demand and term loans to all types of clients against proper security. 3. Credit creation : It is most significant function of the commercial banks. While sanctioning a loan to a customer, a bank does not provide cash to the borrower Instead it opens a deposit account from where the borrower can withdraw. In other words while sanctioning a loan a bank automatically creates deposits. This is known as a credit creation from commercial bank.

Secondary Functions Along with the primary functions each commercial bank has to perform several secondary functions too. It includes many agency functions or general utility functions. The secondary functions of commercial banks can be divided into agency functions and utility functions. 1. Agency Functions : Various agency functions of commercial banks are To collect and clear cheque, dividends and interest warrant. To make payment of rent, insurance premium, etc. To deal in foreign exchange transactions. To purchase and sell securities. To act as trusty, attorney, correspondent and executor. To accept tax proceeds and tax returns. 2. General Utility Functions : The general utility functions of the commercial banks include To provide safety locker facility to customers. To provide money transfer facility. To issue traveller's cheque. To act as referees. To accept various bills for payment e.g phone bills, gas bills, water bills, etc. To provide merchant banking facility. To provide various cards such as credit cards, debit cards, Smart cards, etc. Industrial Banks: Industrial Banks deal in long-term loans. The deposits are not payable at short notices. This helps industrial banks in providing long-term loans to industrial and business concerns. Exchange Banks: These banks are established mainly to finance foreign trade. They deal in all foreign currencies. Agricultural Banks: These banks are also known as Land Development Banks. These banks have been set up to satisfy the farmers long-term financial needs such as purchase of land, agricultural machinery, etc. These banks grant loans for long periods against agricultural and other properties. Cooperative Banks: They are organize on a cooperative basis. The financial resources of these banks comprise of share capital contributed by the members and deposits received from members as well as non-members. Urban cooperative banks meet the financial requirements of traders, artisans and employees. Post office savings banks: Post Office Savings Banks are formed for promoting the habit of savings among the people, particularly from the poor and the middle class families. Indigenous Banks: In India, indigenous bankers have been carrying out banking functions for generations. These are the moneylenders. They mainly deal in hundis and promissory notes. Hundis are regarded as native bills of exchange. Money lenders play an important role in financing home trade, cottage and small industries and marketing of agricultural commodities in India. Saving banks: The main objective of savings banks is to inculcate the habit of saving among the people. These banks pay interest on deposit.

Development banks: Development banks are institutions that provide finance to those sectors of the economy to which commercial banks do not. They generally deal with equity capital. Rural banks: Banks established in rural pockets of the country to render invaluable service to the farmers, artisans and other elements of rural society are broadly termed as rural banks International banks: These banks work at the international level. They look after financing large projects that require foreign investment involving many currencies thereby fostering monetary cooperation between different countries. Credit Control Credit control is the regulation of credit by the central bank for achieving some definite objectives. Modern economy is a credit economy because credit has come to play a major role in setting all kinds of monetary and business transactions in the modern economic system. Changes in the volume of credit influence the level of business activity and the price level in the economy. Unrestricted credit creation by the commercial banks, by causing wide fluctuations in the purchasing power of money, may pose a serious threat to the national economy. Hence, it becomes necessary for the central bank to keep the creation of credit under control in order to maintain stability in the economic system. Objectives of Credit Control The important objectives of credit control are given below : 1. Price Stability: Violent price fluctuations cause disturbances and maladjustments in the economic system and have serious social consequences. Hence, price stability is an important objective of credit control policy. The central bank, by regulating the supply of credit in accordance with the commercial needs of the people, can bring about price stability in the country. 2. Economic Stability: Operation of the business cycle brings instability in a capitalist economy. The objective of the credit control policy of the central bank should be to eliminate cyclical fluctuations and ensure economic stability in the economy. 3. Maximisation of Employment: Unemployment is economically wasteful and socially undesirable. Therefore economic stability with full employment and high per capita income has been considered as an important objective of credit control policy of a country. 4. Economic Growth: The main objective of credit control policy in the underdeveloped countries should be the promotion of economic growth within the shortest possible time. These countries generally suffer from the deficiency of financial resources. Hence, the central banks in these countries should solve the problem of financial scarcity through planned expansion of bank credit. 5. Stabilisation of Money Market: Another objective of the central bank's credit control policy is the stablisation of the money market as to reduce the fluctuations in the interest rates to the

minimum. Credit control should be exercised in such a way that the equilibrium in the demand and supply of money should be achieved at all times. 6. Exchange Rate Stability: Exchange rate stability can also be an objective of credit control policy. Instability in the exchange rates is harmful for the foreign trade of the country. Thus, the central bank, in the countries largely dependent upon foreign trade, should attempt to eliminate the fluctuations in the foreign exchange rates through its credit control policy. Meaures taken by the Central Bank Net Types of Bank Accounts A bank account is a record of the financial transactions between the customer and the banking institution. The banking institutions have provided several types of accounts to cater to the needs of all sorts of individuals. One of the most important functions of banks is accepting deposits, which is aimed towards generating savings for the purpose of utilizing them in profitable investments. People, on the other hand, also prefer to deposit their savings in the banks, as they can earn interest and also avoid the danger of theft. Types of Bank Accounts Though, the types of accounts offered can vary from bank to bank, here are some of the common bank accounts offered by commercial banks. Checking Account A checking account is also known as a current account or a transactional account. Money deposited in this type of account can be withdrawn at any time, as there is no restriction on the number of withdrawals and the amount of money withdrawn. Customers are generally given paper checks to carry out day-to-day transactions, like paying bills, making purchases, or transferring money to another account. ATM (Automated Teller Machine) facility is also provided to the customers. However, no interest is paid on the deposited money and sometimes, customers have to pay a charge to the banks for rendering this service. This type of account is generally maintained by businessmen or concerns, as they have to make a number of financial transactions each day. A transactional account is sometimes called a demand deposit account, as no notice is required to withdraw money, i.e. money is available on demand. Savings Account Savings accounts are aimed towards mobilizing small savings from the general public. There are certain restrictions regarding the number of withdrawals and the amount to be withdrawn in a particular time period. However, money deposited in this account, earns a fair rate of interest. Though the customers can't withdraw their money with checks, they can avail the ATM facility for the

same. A passbook is also provided, which keeps track of all the financial transactions. Money Market Account A money market account is a type of deposit account, in which money can be deposited to earn a higher rate of interest than the savings account. However, a minimum balance is required to be maintained to earn interest and avoid fees. There is also a limit on the number of transactions that can be carried out in a particular month. The customers are usually allowed to make 6 withdrawals per month. Certificate of Deposit A certificate of deposit is also known as time deposit or fixed deposit account. This type of bank account requires the customers to deposit a certain sum of money for a fixed time period. The money deposited in this account can't be withdrawn before the date of maturity. However, some banks allow customers to withdraw money before maturity, by charging a penalty. The rate of interest paid on time deposits is usually higher than the other types of bank accounts. In addition to this, the interest paid on this account depends on the maturity period, i.e. longer the maturity period, the higher is the rate of interest paid. Banking institutions offer several different types of bank accounts to satisfy the individual needs of their customers. These bank accounts enable the public to deposit their money in banks and thereby earn a monetary return. Recurring Deposit Account Recurring Deposit is a special type of deposit account which enables a depositor particularly in fixed income group to save by paying into the account an agreed fixed sum of money monthly over a stipulated period. The deposits in this type of account earn compound interest on quarterly basis. Longer the period for which monthly deposits are agreed to be made higher is the rate of interest subject to rules. Automatic Teller Machine An electronic banking outlet, which allows customers to complete basic transactions without the aid of a branch representative or teller, is called an ATM. There are two primary types of automated teller machines, or ATMs. The basic units allow the customer to only withdraw cash and receive a report of the account's balance. The more complex machines will accept deposits, facilitate credit card payments and report account information. Anyone with a debit or credit card will be able to access most ATMs. Using a machine operated by your bank is usually free, but accessing funds through a unit owned by a competing bank will usually incur a small fee.

Escrow Account An escrow account is a separate bank account for keeping money that is the property of others. Attorneys and real estate agents are required to keep escrow accounts for client money and not commingle client money with their own funds. Procedure of opening bank account 1. Decide the Type of Bank Account you want to Open There are several types of bank accounts such as Saving Account, Recurring Account, Fixed Deposit Account and Current Account. So a decision regarding the type of account to be opened must be taken. 2. Approach any Bank of choice & meet its Bank Officer Once the type of account is decided, the person should approach a convenient bank. He has to meet the bank officer regarding the opening of the account. The bank officer will provide a proposal form (Account Opening Form) to open bank account. 3. Fill up Bank Account Opening Form - Proposal Form The proposal form must be duly filled in all respects. Necessary details regarding name, address, occupation and other details must be filled in wherever required. Two or three specimen signatures are required on the specimen signature card. If the account is opened in joint names, then the form must be signed jointly. Now a days the banks ask the applicant to submit copies of his latest photograph for the purpose of his identification. 4. Give References for Opening your Bank Account The bank normally required references or introduction of the prospective account holder by any of the existing account holders for that type of account. The introducer introduces by signing his specimen signature in the column meant for the purpose The reference or introduction is required to safeguard the interest of the bank. 5. Submit Bank Account Opening Form and Documents The duly filled in proposal form must be submitted to the bank along with necessary documents. For e.g. in case of a joint stock company, the application form must accompany with the Board's resolution to open the account. Also certified copies of articles and memorandum of association must be produced. 6. Officer will verify your Bank Account Opening Form The bank officer verifies the proposal form. He checks whether the form is complete in all respects or not. The accompanying documents are verified. If the officer is satisfied, then he clears the proposal form.

7. Deposit initial amount in newly opened Bank Account After getting the proposal form cleared, the necessary amount is deposited in the bank. After depositing the initial money, the bank provides a pass book, a cheque book and pay in slip book in the case of savings account. In the case of fixed deposits, a fixed deposit receipt is issued. In the case of current account, a cheque book and a pay in slip book is issued. For recurring account, the pass book and a pay in slip book is issued. Operating a bank account After the opening of an account a bank gives a pay-in slip book, pass book, bank statements and cheque book to the customer. This facilitates the customer to operate the account. Pay-in Slip Book This book contains blank pay-in slips for depositing cash or cheques in the accounts. When cash or cheque is to be deposited in a bank the details are filled in the slip available in this book. A slip book contains a number of printed slips with perforated counter-foils. The pay-in slip contains information relating to the date of deposit, name of the depositor, the amount to be deposited, the name and number of bank account, the details of cash or cheque, etc. After filling the pay-in slip the depositor hands over the same to the bank clerk along with cash or cheques to be deposited. The clerk checks the details of the slip and signs and stamps the counter-foil. The counter-foil is handed over to the depositor as an evidence of deposit. The main slip is retained by the bank and used to credit the concerned account. Cheque Book This book contains a number of printed blank forms of cheques with their counter-foils consecutively numbered. An account holder can draw money from his account through cheques. A cheque may be drawn payble to self or payable to third parties. Pass Book Full from text (by CB Gupta) Mobile Banking Mobile banking (also known as M-Banking, mbanking, SMS Banking) is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device. Online Banking Online banking (or Internet banking or E-banking) allows customers of a financial institution to conduct financial transactions on a secure website operated by the institution, which can be a retail or virtual bank, credit union or building society.

Cheques Cheque is an instrument in writing containing an unconditional order, addressed to a banker, signed by the person who has deposited money with the banker, requiring him to pay on demand a certain sum of money only to or to the order of certain person or to the bearer of instrument. In modern commerce, cheques are used with such frequency that people regard it as a convenient form of cash and not as a substitute form of cash. It is less risky and the danger of loss is minimised. The features of cheque including parties to cheque Tum pg 43 Kinds of cheques 1. Bearer Cheque When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else that presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank. 2. Order Cheque When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred). 3. Uncrossed / Open Cheque When a cheque is not crossed, it is known as an "Open Cheque" or an "Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An open cheque may be a bearer cheque or an order one. 4. Crossed Cheque Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account. 5. Anti-Dated Cheque If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid up to six months from the date of the cheque. 6. Post-Dated Cheque

If a cheque bears a date that is yet to come (future date) then it is known as postdated cheque. A post-dated cheque cannot be honored earlier than the date on the cheque. 7. Stale Cheque If a cheque is presented for payment after six months from the date of the cheque it is called stale cheque. The bank does not honor a stale cheque. Precautions to be taken while writing a cheque Tum Crossing of cheques A cheque is a negotiable instrument. During the process of circulation, a cheque may be lost, stolen or the signature of payee may be done by some other person for endorsing it. Under these circumstances the cheque may go into wrong hands. Crossing is a popular device for protecting the drawer and payee of a cheque. Both bearer and order cheques can be crossed. Crossing prevents fraud and wrong payments. Crossing of a cheque means "Drawing Two Parallel Lines" across the face of the cheque. Thus, crossing is necessary in order to have safety. 1. General Crossing :Generally, cheques are crossed when 4. There are two transverse parallel lines, marked across its face or 5. The cheque bears an abbreviation "& Co. "between the two parallel lines or 6. The cheque bears the words "Not Negotiable" between the two parallel lines or 7. The cheque bears the words "A/c. Payee" between the two parallel lines. A crossed cheque can be made bearer cheque by cancelling the crossing and writing that the crossing is cancelled and affixing the full signature of drawer 2. Special or Restrictive Crossing :When a particular bank's name is written in between the two parallel lines the cheque is said to be specially crossed. In addition to the word bank, the words "A/c. Payee Only", "Not Negotiable" may also be written. The payment of such cheque is not made unless the bank named in crossing is presenting the cheque. The effect of special crossing is that the bank makes payment only to the banker whose name is written in the crossing. Specially crossed cheques are safer than a generally crossed cheques. Endorsement of Cheques Endorsement is the act of signing a cheque for the purpose of transferring it to somebody else. A bearer cheque can be transferred by mere delivery but an order cheque is transferred by endorsement and delivery. Endorsements are usually made on the back of the cheque, though they can be made on its face as well. If, however, no space is left on the instrument, it may be made on a separate paper attached to it. This paper is called Allonge.

Endorsements are of various kinds, the most important being as follow: Blank or general endorsement: A blank or general endorsement is one in which the endorser simply puts down his signature. The name of the endorsee, it should be noticed is not put down. The effect of such an endorsement is to make the cheque a bearer cheque. The property in the cheque can now be transferred by mere delivery, no endorsement being required. Thus an order cheque can be made a bearer cheque by putting down a blank endorsement. Special endorsement: Special or full endorsement is that which contains not only the name of the endorser but also the name of the endorse. The effect of special endorsement is that the endorse must endorse it again if he wants to transfer the property in the cheque to somebody else. Restrictive endorsement: When an endorsement restricts the negotiability or transferability of proprietorship of a cheque, it is known as restrictive endorsement. Partial endorsement: A partial endorsement is one which means to transfer the cheque only for a part of its value. For instance a cheque for Rs. 500 may be endorsed only for Rs.300. Legally such an endorsement is invalid.