Banking and Insurance

What is Bank
Bank is a lawful organisation, which
accepts deposits that can be withdrawn
on demand. It also lends money to
individuals and business houses that need
it.
Banks give two assurances to the
depositors
a. Safety of deposit, and
b. Withdrawal of deposit, whenever needed

Role of banks

It encourages savings habit .

It acts as an intermediary.
It facilitates routine business transactions.
It provides loans and advances.
It also facilitates import export transactions.
It helps in national development.
It helps in raising the standard of living of
people.

Types of Banks
1. Central Bank (RBI in India)
2. Commercial Banks
(i) Public Sector Banks
(ii) Private Sector Banks
(iii) Foreign Banks
3.Development Banks
4. Co-operative Banks
(i) Primary Credit Societies
(ii) Central Co-operative Banks
(iii) State Co-operative Banks
5. Specialised Banks -EXIM Bank,SIDBI, NABARD

Industrial Banks

IFCI
ICICI
IDBI
SIDBI

IFCI
The government of india set up the
industrial finance corporation of india in
july 1948
Management of IFCI-12 directors and 4 are
nominated by the IDBI

FUNCTIONS OF IFCI

IDBI
The Industrial Development Bank of India
(IDBI)
Established on 1 July 1964 under an Act of
Parliament as a wholly owned subsidiary of
the Reserve Bank of India.
In 16 February 1976, the ownership of IDBI
was transferred to the Government of India
and it was made the principal financial
institution for coordinating the activities of
institutions engaged in financing, promoting
and developing industry in the country.

OBJECTIVES and FUNCTIONS

Planning, promoting and developing
industries
Co-ordinating the working in
institutions engaged in financing
Undertaking market and investment
research
Providing technical and
administrative assistance

ICICI
ICICI (INDUSTRIAL CREDIT AND INVESTMENT
CORPORATION OF INDIA) Bank Ltd.
ICICI is an Indian diversifiedfinancial
servicescompany headquartered inMumbai,
Maharashtra.
It is the second largest bank in India by assets
ICICI incorporated in 1955 at the initiative of the
World Bank, the Government of India and
representatives of Indian industry, with the objective
of creating a development financial institution for
providing medium-term and long-term project
financing to Indian businesses.

OBJECTIVES OF ICICI

Assisting in the creation

Expansion
Modernisation of such enterprises
Encouraging and promoting the
participation private capital
Encouraging and promoting private
ownership

SIDBI
Small Industries Development Bank of India
(SIDBI)
Established in 1990 under an Act of Indian
Parliament.
Objective: Promotion, Financing & Development
of MSMEs and Co-ordinating Functions of
institutions engaged in similar activities.
Ownership : Public sector banks/FIs/Insurance
Cos owned or controlled by the Government of
India.
Structural Linkage: With Ministry of Finance
and Ministry of SSI.

Agricultural banks

Development of agriculture
sector

NABARD
National Bank for Agriculture and Rural
Development(NABARD) is an apex development bank
inIndiahaving headquarters based in Mumbaiand other
branches are all over the country.
It was established on 12 July 1982 by a special act by the
parliament and its main focus was to uplift rural India by
increasing the credit flow for elevation of agriculture &
rural non farm sector.
It has been accredited with "matters concerning policy,
planning and operations in the field of credit
foragricultureand other economic activities in rural areas
in India".
RBI sold its stake in NABARD to the Government of India,
which now holds 99% stake

OBJECTIVES OF NABARD
1 . To give financial assistance for

increasing the agricultural production

2.To supply the long term needs of the
rural areas
3.To supply loans by way of refinance
4.To help small industries ,cottage
industries and also artisans
5.To achieve overall rural development

Functions of NABARD
Credit Function
Framing policy and guidelines for rural
financial institutions.
Preparation of potential-linked credit plans
annually for all districts for identification of
credit potential.
Monitoring the flow of ground level rural
credit.
Providing credit facilities to issuing
organizations.

Cont
o Supervisory Functions
Undertakes inspection of RRBs and cooperative banks (other
than urban/primary cooperative banks) under the provisions
of Banking Regulation Act, 1949.
Undertakes inspection of State Cooperative Agriculture and
Rural Development Banks (SCARDBs) and apex non-credit
cooperative societies on a voluntary basis
Undertakes portfolio inspections, systems study, besides offsite surveillance of cooperative banks and RRBs.
Provides recommendations to RBI on opening of new
branches by State Cooperative Banks and RRBs.
Administering the Credit Monitoring Arrangements in SCBs
and CCBs.

 A co-operative bank is a financial entity which belongs

to its members, who are at the same time the owners
and the customers of their bank.
Co-operative banks are often created by persons
belonging to the same local or professional community
or sharing a common interest.
Co-operative banks generally provide their members
with a wide range of banking and financial services
(loans, deposits, banking accounts).
In India co-operative banks are regulated with the RBI
and governed by Banking Regulations Act 1949 and
Co-operative Societies Act, 1965.

Functions
Co-operative Banks are organised and managed on the
principal of co-operation, self-help, and mutual help.
They work on the basis of no profit no loss. Profit
maximization is not their goal
Co-operative bank do banking business mainly in the
agriculture and rural sector.
The State Co-operative Banks (SCBs), Central Cooperative Banks (CCBs) and Urban Co-operative Banks
(UCBs) can normally extend housing loans upto Rs 1
lakh to an individual. The scheduled UCBs, however,
can lend upto Rs 3 lakh for housing purposes. The UCBs
can provide advances against shares and debentures
also.

Investment Banks
Aninvestment bankis a financial institution
that assists individuals, corporations, and
governments in raising capital by
underwritingand/or acting as the client's
agent in the issuance ofsecurities.
Unlikecommercial banksandretail
investment banks do not take deposits.

Merchant Banking
Merchant Banking may be defined as an
institution which covers a wide range of
activities such as underwriting of
shares , portfolio management, project
counseling etc

Services of Merchant Banker

Project Counseling
Loan Syndication
Issue Management
Underwriting of public issue
Portfolio management
Consultants and Advisors
Mergers and Acquisitions

Retail Banking
Retail bankingis when abankexecutes
transactions directly with consumers, rather
than corporations or other banks. Services
offered includesavings and transactional
accounts,mortgages,personal loans,debit
cards andcredit cards

Accounts and Deposits

Saving Accounts
Current Accounts
Trading accounts
Fixed Deposits
Internet Banking
Mobile Banking

Loans

Home Loans
Personal Loans
Car Loans
Education Loan

Corporate Banking
Corporate Banking represents the wide
range of banking and financial services
provided to domestic and international
operations of large local corporate and
local operations of multinationals
corporations.

Services include
working capital facilities such as domestic and
international trade operations and funding,
channel financing, and overdrafts, as well as
domestic and international payments, term
loans (including external commercial borrowings
in foreign currency),
letters of guarantee etc

Movement of a check from thebankin which it was deposited

to the bank on which it was drawn, and the movement of
itsface amountin the opposite direction. Thisprocess is called
'clearing cycle'

Clearing System
In India, the clearing system is local and
confined to a defined jurisdiction covering all
the banks and branches situated in the area
under a particular zone. The clearing house is
a voluntary association of banks under the
management of a bank where the settlement
accounts are maintained. Wherever Reserve
Bank of India has its office (and a banking
department), the clearing house is managed
by it. In the absence of an office of the
Reserve Bank, the clearing house is managed
by the State Bank of India, its associate banks
and in a few cases by public sector banks.

Inward Clearing
Inward clearing is where the Bank
customer draws cheque in the favour
of a non- Banker customer.
The inward clearing process
decreases the deposits of the bank.

Outward Clearing
Outwardclearingmeanschequesdra
wnbynon
customersinfavouroftheBanks
customers and deposited in one of
the branches of the Bank.
The outward clearing increases the
deposits of the

MICR Clearing
Magnetic ink character recognition
cheques. Specific type of paper is used
for printing the cheque. Between these
bands, the details of the cheque are
encoded with special magnetic ink.

Cheque Truncation
Cheque truncation is the conversion
of physicalchequeinto asubstitute
electronic formfor transmission to the
paying bank. Cheque truncation
eliminates cumbersome physical
presentation of the cheque and saves
time and processing costs.

Truncation is the process of stopping the

flow of the physical cheque issued by a
drawer to the drawee branch. The physical
instrument will be truncated at some point
en-route to the drawee branch and an
electronic image of the cheque would be
sent to the drawee branch along with the
relevant information like the MICR fields,
date of presentation, presenting banks etc.

Key benefits of Cheque

Truncation
Elimination of transportation of physical cheque
Shorter clearing cycles
Extended cut off time for cheque submission
Real time clearing positions available to banks
throughout the day
Economies of scale with centralized National
Image Archive
Automated inward signature verification
process
Built in anti money laundering features Specific
Benefits to Customers of the Bank

Electronic Clearing
Service (ECS)
Electronic Clearing Service (ECS) is a retail
payment system that can be used to make bulk
payments/receipts of a similar nature especially
where each individual payment is of a repetitive
nature and of relatively smaller amount.
This facility is meant for companies and
government departments to make/receive large
volumes of payments rather than for funds
transfers by individuals.
The ECS facility is available in 47 centres across
India operated by RBI at places where it
manages the clearing houses and by SBI and its
associates in other centres.

 Electronic funds transfer (EFT)is

the electronic exchange, transfer of
money from one account to another,
either within a singlefinancial
institutionor across multiple
institutions, throughcomputer-based
systems.

Complete details such as receivers

name, bank account number , account
type , bank name, city, branch name etc
should be furnished to the bank at the
time of requesting for such transfers

Benefits

Faster mode of transfer

Customer savvy
No requirement to go to bank
In built security system to ensure
safer mode of transfer

RTGS
RTGS stands for Real Time Gross Settlement.
Transfer of money from one bank to another on
areal time basis and on gross basis.
Real time means paymenttransaction is not
subjected to any waiting period
Gross settlement means the transactionis
settled on one to one basis without bunching
with any other transaction.

MINIMUM / MAXIMUM AMOUNT

STIPULATION FOR RTGS
TRANSACTIONS
The RTGS system is primarily for
large value transactions.
The minimum amountto be remitted
through RTGS is Rs. 2 lakh
There is no upper ceiling for RTGS
transactions

PROCESSING
CHARGES/SERVICE
CHARGESFOR RTGS

a) Inward transactions Free, no charge to be

levied.
b) Outward transactions
Rs. 2 lakh to Rs. 5 lakh - not exceeding Rs. 30
per transaction.
Above Rs. 5 lakh - not exceeding Rs. 55 per
transaction.

NEFT
National Electronic Funds Transfer (NEFT)
is a nation-wide payment system
facilitating one-to-one funds transfer.
Under this Scheme, individuals, firms and
corporates can electronically transfer
funds from any bank branch to any
individual, firm or corporate having an
account with any other bank branch in
the country participating in the Scheme.

Even such individuals who do not have a bank

account (walk-in customers) can also deposit
cash at the NEFT-enabled branches with
instructions to transfer funds using NEFT.
However, such cash remittances will be
restricted to a maximum of Rs.50,000/- per
transaction.
Such customers have to furnish full details
including complete address, telephone
number, etc. NEFT, thus, facilitates originators
or remitters to initiate funds transfer
transactions even without having a bank

There is no limit either minimum or

maximum on the amount of funds that
could be transferred using NEFT.
However, maximum amount per
transaction is limited to Rs.50,000/- for
cash-based remittances and remittances
to Nepal.

Charges/Fee
a) Inward transactions at destination bank branches
Free, no charges to be levied from beneficiaries
b) Outward transactions at originating bank branches
charges applicable for the remitter
-For transactions up to Rs 10,000 : not exceeding Rs 2.50
(+ Service Tax)
- For transactions above Rs 10,000 up to Rs 1 lakh: not
exceeding Rs 5 (+ Service Tax)
- For transactions above Rs 1 lakh and up to Rs 2 lakhs: not
exceeding Rs 15 (+ Service Tax)
-For transactions above Rs 2 lakhs: not exceeding Rs 25 (+
Service Tax)

Benefits
Faster Its faster and more convenient than
sending Demand Drafts / Cheques /
Telegraphic Transfers.
Easier Forget long queues and timeconsuming DDs, cheques and pay orders! No
need to visit the bank branch and search for a
courier.
Reach No Geographical limitations within
India as long as it is a participating bank in
the RBI's RTGS/NEFT system.

Criteria

NEFT

RTGS

Settlement

Done in batches
(Slower)

Real time (Faster)

Minimum amount of
money transfer limit

No Minimum

2 lacs

Maximum amount of
money transfer limit

No Limit

No Limit

When does the Credit

Happen in beneficiary
account

Happens in the hourly

batch Between Banks

Real time between

Banks

Maximum Charges as
per RBI

Upto 10,000 Rs 2.5

from 10,001 1 lac Rs
5
from 1 2 lacs Rs 15
Above 2 lacs Rs 25

Rs 25-30 (Upto 2 5
lacs)
Rs 50-55 (Above 5 lacs)
(Lower charges for first
half of day)

Suitable for

Small Money Transfer

Large Money Transfer

POS
POS stands for Point Of Sales. A POS
is a place through which a sale
transaction is done by a retail shop
owner using the customer's
credit/debit card. The bank would
make the payment to the show owner
for the transaction done on his POS
machines (provided the customer
validates it with a PIN or a Signature)

Cont
POS Benefits:
No need to carry cash, to your bank,
thus minimizing risks?
Saves money and time wasted on
monthly reconciliations.
Boosts the merchants selling business
by offering greater payment options.
Proceeds are deposited directly into the
merchants bank account. No need to
go to the bank branch.

SWIFT
Society for Worldwide Interbank
Financial Telecommunicationprovides a network that enables financial
institutions worldwide to send and receive
information about financial transactions in
a secure, standardized and reliable
environment. Swift also sells software and
services to financial institutions, much of
it for use on the SWIFT Net Network.
Business Identifier Codes (BICs) are
popularly known as "SWIFT codes".

Mobile banking
Mobile banking is a system that
allows customers of a financial
institution to conduct a number of
financial transactions through a
mobile device such as a mobile
phone or personal digital assistant.

DEBIT CARD
Debit card is a plastic card which
provides a alternative payment
method to cash when making
purchases.
Functionally, it can be called an
electronic cheque, as the funds are
withdrawn directly from either the
bank account, or from the remaining
balance on the card.
08/08/16

56

 Debit cards can also allow for instant

withdrawal of cash, acting as the
ATM card for withdrawing cash and
as a cheque guarantee card.

08/08/16

57

ADVANTAGES
1.A consumer who is not credit worthy and
may find it difficult or impossible to obtain a
credit card can more easily obtain a debit
card.
2.Use of a debit card is limited to the
existing funds in the account to which it is
linked.
3.For most transactions, a check card can
be used to avoid check writing altogether.
08/08/16

59

CONTD.
4. Like credit cards, debit cards are
accepted by
merchants with less
identification.
5. Unlike a credit card, which charges
higher fees and interest rates when a
cash advance is obtained, a debit card
may be used to obtain cash from an ATM
or a PIN-based transaction at no extra
charge, other than a foreign ATM fee.
08/08/16

60

Credit card
Acredit cardis apayment cardissued
to users as a system ofpayment. It
allows the cardholder to pay for goods
and services based on the holder's
promise to pay for them.
The issuer of the card creates
arevolving accountand grants aline of
creditto theconsumer from which the
user can borrow money for payment to
amerchantor as acash advanceto the

Core banking
Core banking is services provided by a group of
networkedbankbranches. Bank customers may access
their funds and other simple transactions from any of
the member branch offices.
Core Banking is normally defined as the business
conducted by a banking institution with its retail and
small business customers. Many banks treat the retail
customers as their core banking customers, and have a
separate line of business to manage small businesses.
Larger businesses are managed via the corporate
banking division of the institution. Core banking
basically is depositing and lending of money.