Where the word “Bank” came from

The history of the banking industry is long and vast, and Finance is the
lifeblood of trade, commerce, and industry. The development of any
country mainly depends upon the banking system. The term bank is
either derived from the old Italian word “Banca” or the French word
“Banque,” both mean a Bench or money exchange table.
In the olden days, European money lenders or money changers displayed
(show) coins of different countries in big heaps (quantity) on benches or
tables for lending or exchanging. Nowadays, the banking sector acts as
the backbone of modem business.
Meaning of Bank
 Feals with money; it accepts deposits and advances loans.
 It also deals with credit; it has the ability to create credit, i.e., the
ability to expand its liabilities as a multiple of its reserves.
 It is a commercial institution; it aims at earning profit.
 It is a unique financial institution that creates demand deposits that
serve as a medium of exchange, and as a result, the banks manage
the country’s payment system.
 Finally, we can say that bank is an organization where people and
businesses can invest or borrow money, change it to foreign
money, etc. or a building where these services are offered.
 All banks set interest rates on their savings accounts that usually
vary from 2.50% per annum to 7.00% per annum depending on the
amount of savings.
Characteristics / Features of a 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.
 1. Dealing in Money
2. Individual/Firm/Company
3. Acceptance of Deposit
4. Giving Advances
5. Payment and Withdrawal
6. Agency and Utility Services
7. Profit and Service Orientation
8. Ever-increasing
9. Connecting Link
10. Banking Business
11. Name Identity
Let’s try to understand these;
1. Dealing in Money
The bank is a financial institution which deals with other people’s
money, i.e., the money given by depositors.
2. Individual/Firm/Company
A bank may be a person, firm, or company. A banking company means
a company that is in the business of banking.
3. Acceptance of Deposit
A bank accepts money from people in deposits that are usually repayable
on demand or after the expiry of a fixed period. It gives safety to the
deposits of its customers. It also acts as a custodian of funds of its
customers.
4. Giving Advances
A bank lends out the money in loans to those who require it for different
purposes.
5. Payment and Withdrawal
A bank provides an easy payment and withdrawal facility to its
customers in checks and drafts. It also brings bank money into
circulation. This money is in the form of checks, drafts, etc.
6. Agency and Utility Services
A bank provides various banking facilities to its customers. They include
general utility services and agency services.
7. Profit and Service Orientation
A bank is a profit-seeking institution with having service-oriented
approach.
8. Ever-increasing
Functions Banking is an evolutionary concept. There is continuous
expansion and diversification as regards the functions, services, and
activities of a bank.

9. Connecting Link
A bank acts as a connecting link between borrowers and lenders of
money. Banks collect money from those who have surplus money and
give the same to those who require money.
10. Banking Business
A bank’s main activity should be to do banking business that should not
be subsidiary to any other business.
11. Name Identity
A bank should always add the word “bank” to its name to enable people
to know that it is a bank and deals in money.
Functions of Banks
1. Primary Functions of Banks.
o Accepting Deposits.
o Saving Deposits.
o Fixed Deposits.
o Current Deposits.
o Recurring Deposits.
2. Loans and Advances.
 Overdraft
 Cash Credits
 Loans
 Discounting of Bill of Exchange
3. Secondary Functions of Banks.
 Agency Functions.
 Transfer of Funds.
 Collection of checks.
 Periodic Payments.
 Portfolio Management.
 Periodic Collections.
 Other Agency Functions.
4. General Utility Functions.
 Issue of Drafts, Letter of Credits, etc.
 Locker Facility.
 Underwriting of Shares.
 Dealing in Foreign Exchange.
 Project Reports.
 Social Welfare Programs.
 Other Utility Functions.

A. Primary Functions of Banks

The functions of a bank are also known as banking functions. They are
the main functions of a bank. These primary functions of banks are
explained below.

1. Accepting Deposits
The bank collects deposits from the public. These deposits can be of
different types, such as

 Saving Deposits: This type of deposit encourages saving habits

among the public. The rate of interest is low. At present, it is about
4% p.a.
 Fixed Deposits: The lump sum amount is deposited at one time for
a specific period. A higher rate of interest is paid.
 Current Deposits: This type of account is operated by
businessmen. Withdrawals are freely allowed. No interest is paid.
 Recurring Deposits: This type of account is operated by salaried
persons and petty traders. Withdrawals are permitted only after the
expiry of a certain period. A higher rate of interest is paid.

2. Granting of Loans and Advances

The bank advances loans to the business community and other members
of the public. The rate charged is higher than what it pays on deposits.
The types of bank loans and advances are:

 Overdraft: This type of advance is given to current account

holders. It is sanctioned to business people and firms. An overdraft
facility is granted against collateral security.
 Cash Credits: The client is allowed cash credit up to a specific
limit fixed in advance. The cash credit is given against the security
 of tangible assets and or guarantees. The advance is given for a
longer period, and a larger loan amount is sanctioned than that of
overdraft.
 Loans: It is normal for the short term, say a period of one year, or
medium-term, says a period of five years. Nowadays, banks do
lend money for the long term. Loans are normally secured against
tangible assets of the company.
 Discounting of the bill of exchange: The bank can advance
money by discounting or by purchasing bills of exchange, both
domestic and foreign bills. The bill is presented to the drawee or
acceptor of the bill on maturity, and the amount is collected
.B. Secondary Functions of Banks
The bank performs some secondary functions, also called non-banking
functions. These important secondary’ functions of banks are explained
below.

1. Agency Functions
The bank acts as an agent of its customers. The bank performs several
agency functions, which includes:-

 Transfer of Funds: The bank transfers funds from one branch to

another or from one place to another.
 Collection of checks: The bank collects the money of the checks
through the clearing section of its customers. The bank also
collects money from the bills of exchange.
 Periodic Payments: On standing instructions of the client, the
bank makes periodic payments regarding electricity bills, rent, etc.
  Portfolio Management: The banks also undertake to purchase and
sell the shares and debentures on behalf of the clients and
accordingly debits or credits the account. This facility is called
portfolio management.
 Periodic Collections: The bank collects salary, pension, dividend,
and other periodic collections on behalf of the client.
 Other Agency Functions: They act as trustees, executors,
advisers, and administrators on behalf of their clients. They act as
representatives of clients to deal with other banks and institutions.
2. General Utility Functions
The bank also performs general utility functions, such as,

 Issue of Drafts and Letter of Credits: Banks issue drafts for

transferring money from one place to another. It also issues letters
of credit, especially in the case of import trade. It also issues
travelers’ checks.
 Locker Facility: The bank provides a locker facility for the safe
custody of valuable documents, gold ornaments, and other
valuables.
 Underwriting of Shares: The bank underwrites shares and
debentures through its merchant banking division.
 Dealing in Foreign Exchange: The commercial banks are allowed
by.RBI to deal in foreign exchange.
 Project Reports: The bank may also undertake to prepare project
reports on behalf of its clients.
 Social Welfare Programs: It undertakes social welfare programs,
such as adult literacy programs, public welfare campaigns, etc.
 Other Utility Functions: It acts as a referee to the financial
standing of customers. It collects creditworthiness information
about clients of its customers. It provides market information to its
customers, etc. It provides travelers’ check facilities.
Importance of Banks
Banking plays an important role in financial life, and the importance of
banks can be seen from the fact that they are considered the lifeblood of
the modem economy.
1. For Business.
2. Savings and Advancing Loans.
3. Money Transfer.
4. Encourages Savings.
5. Transfer Savings into Investment.
6. Overdraft Facilities.
7. Discounting Bill of Exchange.
8. Financing Internal & External Trade.
9. Act as an Agent.
10. Issue of Traveler’s Check.
11. General Utility Services.
Let’s try to understand these;

1. For business
Based on these important functions of Banks, we may easily describe the
importance of banks in today’s global life.

2. Savings and Advancing Loans

Acceptance of deposits and advancing the loans is the basic function of
commercial banks.

3. Money Transfer
Banks have facilitated payments from one place or person to another
utilizing check, bills of exchange and drafts, instead of cash.

4. Encourages Savings
Banks perform an invaluable service by encouraging savings among the
people. These savings help in capital formation.

5. Transfer Savings into Investment

Bank transfer the savings collected from the people into investment and
thus increases the amount of effective capital, which helps the process of
economic growth.

6. Overdraft Facilities
The banks allow the overdraft facilities to their trusted customers and
thus help them in overcoming temporary financial difficulties.

7. Discounting bill of exchange

The importance of banks can be seen through the discounting bill of
exchange. Banks discount their bill of exchange of consumers and help
them in the financial difficulties.

8. Financing Internal & External Trade

Banks help merchants and traders finance internal and external trade by
discounting a foreign bill of exchange, issuing letters of credit, and other
guarantees for their customers.
 9. Act as an Agent
The bank acts as an agent and helps its customers purchase and sell
shares, provision of lockers, payment of monthly, and dividends on
stock.

10. Issue of Traveler’s check

For the convenience and security of money for travelers and tourists, the
bank provides traveler s checks.

11. General Utility Services

The existence of commercial banks is essential for contributing to
general prosperity. Banks are the main factors in raising the level of
economic development of the world.

Banking

The term banking has been comprehensively defined under the banking
regulation act 1949. According to section 5(b) of the banking regulation
act ,the term banking means accepting for the purpose of lending or
investment of deposits of money received from the public, repayable on
demand or otherwise and withdrawable by cheque, draft, order or
otherwise. According to the definition, the banker is engaged in the
business of accepting deposits from the public and utilising such
deposits either for the purpose of lending or for the purpose of
investment.
The banking Industry handles finances in a country including cash and
credit. Banks are the institutional bodies that accept deposits and grant
credit to entities and play a major role in maintaining the economic
stature of a country. Given their importance in the economy, banks are
kept under strict regulation in most countries. In India, the Reserve Bank
of India (RBI) is the apex banking institution that regulates the monetary
policy in the country.

Essential to satisfy the requirements of the above definition are laid

down as below:

1. Acceptance of deposits should be for the purpose of lending and

investment this, companies accepting deposits for the purpose of
financing their trading or manufacturing business Cannot be
considered as a bank.

2. The deposit should be accepted from the public.

3. Acceptance of deposits should be in form of cash . Banks obtain

large funds from millions of depositors. The depositors do not have
any control over the management of the banks. The government of
the country has therefore to take such steps that would safeguard
the interest of the depositors and the public in general and hence
there existed a need to have a comprehensive legislation in this
regard.
The important aspect are:

 Only a firm or company and not a individual are permitted to act as

a bank.
 A firm consisting of not more than ten partners or a company
incorporated under Indian companies act, 1956 can be a bank, a
banker or a banking company.
 Money lenders are not bankers: the definition of banker does not
include Indian money lenders. The main reason for this is that they
run their business as individuals or groups of individuals and not as
a company registered under the provisions of the companies act
and the banking regulation act.
 Accepting deposits of money from the public: every institution
carrying out the business of banking must accept the deposits of
money.the deposits of money from the public and should not
confine to the deposits from their members only.
 Acceptance for the purpose of lending or investment: an institution
accepting deposits of money without any purpose or with a
purpose other than lending or investment cannot be termed as
bank.
 Deposit repayable to depositors on demand or otherwise: deposit
of money may be repayable either on demand or if they are term
deposit, on the expiry of the stipulated term or period .
Banks are classified into classified into four categories –
Commercial Banks
Small Finance Banks
Payments Banks
Co-operative Banks
 1. Commercial Banks can be further classified into public sector
banks, private sector banks, foreign banks and Regional Rural
Banks (RRB). On the other hand, cooperative banks are classified
into urban and rural. Apart from these, a fairly new addition to the
structure is a payments bank.

 Public sector
These are the nationalised banks and account for more than 75 per cent
of the total banking business in the country. Majority of stakes in these
banks are held by the government. In terms of volume, SBI is the largest
public sector bank in India and after its merger with its 5 associate banks
(as on 1st April 2017) it has got a position among the top 50 banks of the
world.
 Private sector
These include banks in which major stake or equity is held by private
shareholders. All the banking rules and regulations laid down by the RBI
will be applicable on private sector banks as well. Given below is the list
of private-sector banks in India.

 Foreign bank
Foreign bank is one that has its headquarters in a foreign country but
operates in India as a private entity. These banks are under the
obligation to follow the regulations of its home country as well as the
country in which they are operating. Given below is the list of foreign
banks operating in India
 Regional rural banks
These are also scheduled commercial banks but they are established with
the main objective of providing credit to weaker sections of the society
like agricultural labourers, marginal farmers and small enterprises. They
usually operate at regional levels in different states of India and may
have branches in selected urban areas as well. Other important functions
carried out by RRBs include-

 Providing banking and financial services to rural and semi-urban

areas.
 Government operations like disbursement of wages of MGNREGA
workers, distribution of pensions, etc.
 Para-Banking facilities like debit cards, credit cards and locker
facilities.

2. Small finance Bank

This is a niche banking segment in the country and is aimed to provide
financial inclusion to sections of the society that are not served by other
banks. The main customers of small finance banks include micro
industries, small and marginal farmers, unorganized sector entities and
small business units. These are licensed under Section 22 of the Banking
Regulation Act, 1949 and are governed by the provisions of RBI Act,
1934 and FEMA.
3. Payment Bank
This is a relatively new model of bank in the Indian Banking industry. It
was conceptualised by the RBI and is allowed to accept a restricted
deposit. The amount is currently limited to Rs. 1 Lakh per customer.
They also offer services like ATM cards, debit cards, net-banking and
mobile-banking.

4. Co – operative Bank
Co-operative banks are registered under the Cooperative Societies Act,
1912 and they are run by an elected managing committee. These work
on no-profit no-loss basis and mainly serve entrepreneurs, small
businesses, industries and self-employment in urban areas. In rural areas,
they mainly finance agriculture-based activities like farming, livestock
and hatcheries.

 Urban co – operative Bank

Urban Co-operative Banks refer to the primary cooperative banks
located in urban and semi-urban areas. These banks essentially lent to
small borrowers and businesses centered around communities, localities
work place groups.
According to the RBI, on 31st March, 2003 there were 2,104 Urban Co-
operative Banks of which 56 were scheduled banks. About 79% of these
are located in five states, – Andhra Pradesh, Gujarat, Karnataka,
Maharashtra and Tamil Nadu

 State co – operative Bank

A State Cooperative Bank is a federation of the central cooperative bank
which acts as custodian of the cooperative banking structure in the State.

Banks can also be classified on the basis of Scheduled and Non-

Scheduled Banks. It is essential for every individual to check if they are
holding their savings or deposit account with a Scheduled Bank or Non-
Scheduled Bank. Scheduled Banks are also covered under the depositor
insurance program of Deposit Insurance and Credit Guarantee
Corporation (DICGC), which is beneficial for all the account holders
holding a savings and fixed / recurring deposit account. Under DICGC,
bank deposits of up to Rs 1 lakh, including the fixed, savings, current
and recurring deposits, per depositor per bank in the event of bank
failure are insured.

 Scheduled Banks
Scheduled banks are covered under the 2nd Schedule of the Reserve
Bank of India Act, 1934. To qualify as a scheduled bank, the bank
should conform to the following conditions:

 A bank that has a paid-up capital of Rs. 5 Lakh and above qualifies
for the schedule bank category.
 A bank requires to satisfy the central bank that its affairs are not
carried out in a way that causes harm to the interest of the depositors.
 A bank should be a corporation rather than a sole-proprietorship or
partnership firm.

 Non-scheduled banks
Refer to the local area banks which are not listed in the Second Schedule
of Reserve Bank of India. Non-Scheduled Banks are also required to
maintain the cash reserve requirement, not with the RBI, but with them.
Financial institution
What Is a Financial Institution (FI)?
A financial institution (FI) is a company engaged in the business of
dealing with financial and monetary transactions such as deposits,
loans, investments, and currency exchange. Financial institutions
encompass a broad range of business operations within the financial
services sector including banks, trust companies, insurance companies,
brokerage firms, and investment dealers.
Virtually everyone living in a developed economy has an ongoing or at
least periodic need for the services of financial institutions.

Why Are Financial Institutions Important?

Financial institutions are essential because they provide a marketplace
for money and assets so that capital can be efficiently allocated to where
it is most useful. For example, a bank takes in customer deposits and
lends the money to borrowers. Without the bank as an intermediary, any
individual is unlikely to find a qualified borrower or know how to
service the loan. Via the bank, the depositor can earn interest as a result.
Likewise, investment banks find investors to market a company's shares
or bonds to.

What Are the Different Types of Financial Institutions?

The most common types of financial institutions are commercial banks,
investment banks, insurance companies, and brokerage firms. These
entities offer a wide range of products and services for individual and
commercial clients such as deposits, loans, investments, and currency
exchange.
Types of Financial Institutions
There is a wide range of such institutions operating around the world.
However, the commonly identified types are as follows:
#1 – Central Banks
These are the financial entities that monitor and oversee the procedures
of the other financial or banking institutions in the nation. They do not
deal with individual customers directly. Instead, they finance other retail
banks. In short, these are banks for the banks. Every economy has a
separate central bank and is named differently.
#2 – Commercial Banks
Retail and commercial banks are widely available to serve the financial
needs of individuals and businesses. From depositing money to
borrowing amounts to buy property, these banks act as saviors for
people in need to secure their future financially. Some of the products
that these banks offer include savings accounts, personal loans,
mortgage loans, certificates of deposits (CDs), credit cards, etc.

#3 – Non-Banking Institutions
Non-banking financial institutions (NBFIs) are entities that neither
acquire a valid banking license nor do they allow customers to deposit
amounts. However, these entities can offer alternative financial facilities
to customers, including investment, consultation, brokerage,
transmission, and risk pooling services.
#4 – Credit Unions
The institutions offer traditional banking services but are not publicly
traded entities. They are established and operated by the members, the
ultimate shareholders. These associations use and reinvest the money
received as an interest to keep the costs low. As a result, they become
the better choices for members to fulfill their financial needs. These
entities enjoy tax-exempt status as not-for-profit organizations.

#5 – Investment Entities
The investment banks and brokerage firms fall under this non-depository
category. The investment firms help corporations, governments, and
other entities build capital, raise funds, and gain financial advice. These
entities, as brokerage ventures, let customers acquire finances by
investing in securities, like stocks, mutual funds, bonds, and exchange-
traded funds (ETFs). In addition, it acts as a guide to startups or
companies in conducting complex transactional processes. They also
offer advice for initiating fruitful mergers and acquisitions (M&A).

#6 – Thrift Institutions
Also referred to as savings and loan associations, these entities allow up
to 20% of total lending to customers, who are also their owners. They
help individuals enjoy opening accounts and acquiring personal loans
and home mortgages.
#7 – Insurance Companies
These financial institutions allow individuals and businesses have
policies against monthly premiums, which they are subject to pay at
regular intervals. In addition, these schemes offer coverage or protection
to assets against any financial risk they remain exposed to.

Who regulates financial institutions?

The nations have strict regulatory mechanisms for financial institutions.
Though it differs from country to country, each regulatory authority
aims to ensure these entities keep the financial market and the economy
active and efficient. In the United States, the following bodies look after
the institutions:

1. The Federal Deposit Insurance Corporation (FDIC) – Depository

Institutions
2. National Credit Union Administration (NCUA) – Credit Union
3. Office of Thrift Supervision – Thrift Institutions or Savings and Loan
Associations
4. Office of the Comptroller of the Currency – National Banks
5. Others

Investment banking
What is 'Investment Banking'
Definition: Investment banking is a special segment of banking
operation that helps individuals or organisations raise capital and
provide financial consultancy services to them.

They act as intermediaries between security issuers and investors and

help new firms to go public. They either buy all the available shares at a
price estimated by their experts and resell them to public or sell shares
on behalf of the issuer and take commission on each share.
What Do Investment Banks Do?
There can sometimes be confusion between an investment bank and
the investment banking division (IBD) of a bank. Full-service
investment banks offer a wide range of services that include
underwriting, M&A, sales and trading, equity research, asset
management, commercial banking, and retail banking. The investment
banking division of a bank provides only the underwriting and M&A
advisory services.

full-service banks offer the following services:

Underwriting – Capital raising and underwriting groups work between
investors and companies that want to raise money or go public via
the IPO process. This function serves the primary market or “new
capital”.
Mergers & Acquisitions (M&A) – Advisory roles for both buyers and
sellers of businesses, managing the M&A process start to finish.
Sales & Trading – Matching up buyers and sellers of securities in the
secondary market. Sales and trading groups in investment banking act
as agents for clients and also can trade the firm’s own capital.
Equity Research – The equity research group research, or “coverage”, of
securities helps investors make investment decisions and supports
trading of stocks.
Asset Management – Managing investments for a wide range of
investors including institutions and individuals, across a wide range of
investment styles.
Underwriting Services in Investment Banking
Underwriting is the process of raising capital through selling stocks or
bonds to investors (e.g., an initial public offering IPO) on behalf of
corporations or other entities. Businesses need money to operate and
grow their businesses, and the bankers help them get that money by
marketing the company to investors.There are generally three types of
underwriting:
Firm Commitment – The underwriter agrees to buy the entire issue and
assume full financial responsibility for any unsold shares.
Best Efforts – Underwriter commits to selling as much of the issue as
possible at the agreed-upon offering price but can return any unsold
shares to the issuer without financial responsibility.
All-or-None – If the entire issue cannot be sold at the offering price, the
deal is called off and the issuing company receives nothing.
Banking Clients
Investment bankers advise a wide range of clients on their capital raising
and M&A needs. These clients can be located around the world.
Investment banks’ clients include:
Governments – Investment banks work with governments to raise
money, trade securities, and buy or sell crown corporations.
Corporations – Bankers work with both private and public companies to
help them go public (IPO), raise additional capital, grow their
businesses, make acquisitions, sell business units, and provide research
for them and general corporate finance advice.
Institutions – Banks work with institutional investors who manage other
people’s money to help them trade securities and provide research. They
also work with private equity firms to help them acquire portfolio
companies and exit those positions by either selling to a strategic buyer
or via an IPO.
Top Investment Banks In India
In the 19th century, the Banking sector acquired land in India for the
first time.That was a start for the Banks to set their foot, and now, India
has leading investment banks that are listed below:
SBI Capital Markets Ltd.
ICICI Securities Ltd.
Central Bank of India
Axis Bank Ltd.
HDFC Bank Ltd.
Services Offered by Investment Banks in India
There is a whole gamut of services offered by investment banks in India.
Following are top services that stand out –
Mergers & Acquisition Advisory: Companies need to expand their
market share and generate more revenue. Thus, they need to find a better
opportunity to merge or acquire other companies that can help them
reach their objectives. Investment banks in India help these companies
make the right deals (mergers & acquisition deals) and make prudent
decisions so that the ROI gets to a maximum and the risk becomes the
least.
Management of Capital Issues: Usually, investment banks in India offer
management of public issues under two methods – the fixed price
method and the book building method. They also offer IPO (Initial
Public Offering), FPO (Follow on Public Offer), Preferential
Issues, Rights Issue, QIP (Qualified Institutional Placement), and Debt
Placement. The idea is to help the big organizations expand in the long
run and advise them on various strategies.
Debt Syndication: When a company is looking to finance new
opportunities, they mostly don’t have enough cash to go for it. However,
if they talk to the investment bankers, they can help them with project
finance, term loan, working capital loan, mezzanine financing, external
commercial borrowing, etc. These services facilitate the public
and private companies to tap into the right opportunities at the right time
and ensure solid growth.
Buybacks/Takeovers: Investment bankers in India advise their clients
to buyback their shares at the right time. Moreover, they also help them
do their due diligence, find out the target company, and understand
whether the takeovers are necessary. They also help the companies
adhere to compliances and regulations as per SEBI.
Corporate Advisory: Investment bankers in India offer corporate
advisory to various companies, especially to giant companies and
corporate bodies. As corporate advisory is a huge area, they first
understand the companies’ needs and then offer tailor-made services.
They start with business appraisals, and then the investment banks in
India help the companies develop a business plan. Once the business
plan is developed, they go for strategic project advisory. Then they also
help companies with business valuation, project identification, and
corporate restructuring.
Culture in Investment Banks in India
The culture in investment banking in India is not something most will
look up to because there is a huge imbalance between taking risks and
devotion to the work!
In investment banking, risk-taking abilities and initiatives are directly
proportional to how much money the investment bankers will make, not
how much love they have for the job. That’s why, unfortunately, not all
candidates are suitable for investment banking jobs in India.
It may seem like a labor market though, but usually, in the long term,
very few investment bankers stay in one organization as competitors
offer them higher positions.
Moreover, there is no work-life balance. You may need to work for 16-
18 hours a day to clinch the deals. Only one thing is pretty good here,
and that is the money. If you can stick to this culture, you will make
huge money within a few years.

Meaning of Indian Financial System

The financial system is the main part of running the economy
Smoothly. Financial system provides the flow of finance in the
Economy. Which leads to the development of the
Country financial system show the strength of the country.
Indian Financial System is a combination of financial
Institutions, financial markets, financial instruments and
Financial services to facilitate the transfer of funds. Financial
System provides a payment mechanism for the exchange of
Goods and services. It is a link between saver and investor.
Structure of Indian Financial System
Structure of Indian Financial System

RBI is the banker to banks—whether commercial, cooperative, or rural.

The relationship is established once the name of a bank is included in the
Second Schedule to the Reserve Bank of India Act, 1934. Such bank,
called a scheduled bank, is entitled to facilities of refinance from RBI,
subject to fulfillment of the following conditions laid down in Section
42(6) of the Act, as follows:
• it must have paid-up capital and reserves of an
Aggregate value of not less than an amount specified from time to time;
and
• it must satisfy RBI that its affairs are not being
Conducted in a manner detrimental to the interests of its depositors. The
classification of commercial banks into scheduled and nonscheduled
categories that was introduced at the time of establishment of RBI in
1935 has been extended during the last two or three decades to include
state cooperative banks, primary urban cooperative banks, and RRBs.
RBI is authorized to exclude the name of any bank from the Second
Schedule if the bank, having been given suitable opportunity to increase
the value of paid-up capital and improve deficiencies, goes into
liquidation or ceases to carry on banking activities. A system of local
area banks announced by the Government in power until 1997 has not
yet taken root. RBI has given in principle clearance to five applicant
The central bank of any country executes many functions such as
overseeing monetary policy, issuing currency, managing foreign
exchange, working as a bank for government and as a banker of
scheduled commercial banks. It also works for overall economic growth
of the country. The preamble of the Reserve Bank of India describes its
main functions as: to regulate the issue of Bank Notes and keeping of
reserves with a view to securing monetary stability in India and
generally to operate the currency and credit system of the country to its
advantage.

Financial supervision
The primary objective of RBI is to undertake consolidated supervision
of the financial sector comprising commercial banks, financial
institutions, and non-banking finance companies. The board Is
constituted by co-opting four directors from the Central Board as
members for a term of two years and is chaired by the governor. The
deputy governors of the reserve bank are ex-officio members. One
deputy governor, usually the deputy governor in charge of banking
regulation and supervision, is nominated as the vice-chairman of the
board. The board is required to meet normally once every month. It
considers inspection reports and other supervisory issues placed before it
by the supervisory departments. BFS through the Audit Sub-Committee
also aims at upgrading the quality of the statutory audit and internal
audit functions in banks and financial institutions. The audit sub-
committee includes deputy governor as the chairman and two directors
of the Central Board as members. The BFS oversees the functioning of
the Department of Banking Supervision (DBS), the Department of Non-
Banking Supervision (DNBS) and the Financial Institutions Division
(FID) and gives directions on the regulatory and supervisory issues.
Regulator and supervisor of the financial system
The institution is also the regulator and supervisor of the financial
system and prescribes broad parameters of banking operations within
which the country’s banking and financial system functions. Its
objectives are to maintain public confidence in the system, protect
depositors’ interest and provide cost-effective banking services to the
public. The Banking Ombudsman Scheme has been formulated by the
Reserve Bank of India (RBI) for effective addressing of complaints by
bank customers. The RBI controls the monetary supply, monitors
economic indicators like the gross domestic product and has to decide
the design of the rupee banknotes as well as coins.
Regulator and supervisor of the payment and settlement systems
Payment and settlement systems play an important role in improving
overall economic efficiency. The Payment and Settlement Systems Act
of 2007 (PSS Act)[66] gives the Reserve Bank oversight authority,
including regulation and supervision, for the payment and settlement
systems in the country. In this role, the RBI focuses on the development
and functioning of safe, secure and efficient payment and settlement
mechanisms. Two payment systems National Electronic Fund Transfer
(NEFT) and Real-Time Gross Settlement (RTGS) allow individuals,
companies and firms to transfer funds from one bank to another. These
facilities can only be used for transferring money within the country.

From 16 December 2019, one can transfer money online using the
National Electronic Funds Transfer (NEFT) route 24x7, i.e., any time of
the day and any day of the week. The Reserve Bank of India stated
earlier in December 2019 that bank customers will be able to transfer
funds through NEFT around the clock on all days including weekends
and holidays from 16 December.[67] In RTGS, transactions are
processed continuously 24x7.
Banker and debt manager to government
Just as individuals need a bank to carry out their financial transactions
effectively and efficiently, governments also need a bank to carry out
their financial transactions. The RBI serves this purpose for the
Government of India (GoI). As a banker to the Government of India, the
RBI maintains its accounts, receive payments into and make payments
out of these accounts. The RBI also helps the GoI to raise money from
the public via issuing bonds and government-approved securities. In Sep
2019, a decision at RBI directors meet was taken to change the RBI
financial accounting year to March–April to align itself with the central
government calendar instead of the current June–July year.

RBI issue taxable bonds for investments. From 1 July 2020, RBI is
offering Floating Rate Savings Bonds, 2020 (Taxable) – FRSB 2020 (T).
The interest on the bonds is payable semi-annually on 1 Jan and 1 July
every year. The coupon on 1 January 2021 shall be paid at 7.15%. The
Interest rate for next half-year will be reset every six months, the first
reset being on 1 January 2021. There is no option to pay interest on
cumulative basis.
Issue of currency
Other than the Government of India, the Reserve Bank of India is the
sole body authorized to issue banknotes in India

The bank also destroys banknotes when they are not fit for circulation.
All the money issued by the central bank is its monetary liability, i.e.,
the central bank is obliged to back the currency with assets of equal
value, to enhance public confidence in paper currency. The objectives
are to issue banknotes and give the public adequate supply of the same,
to maintain the currency and credit system of the country to utilize it in
its best advantage, and to maintain the reserves.
The RBI maintains the economic structure of the country so that It can
achieve the objective of price stability as well as economic development
because both objectives are diverse in themselves.

REGULATING & CONTROLLING BANKING SERVICES IN INDIA

The Banking Regulation Act, 1949 controls the banking institutions
from their birth to death. If any bank has to start business, it cannot do so
unless it has obtained a licence under the provisions of Banking
Regulation Act,1949 and if it has to close down business, the winding of
operations will be as per the provisions of the Banking Regulations
Act,1949. Even for the day today banking business, the Banking
Regulation Act, 1949 lays down defined areas including provisions for
penalties in case of violation by the concerned banks.
The Banking regulation Act came Into effect on 16 March 1949 and it
applies to the whole of India. The act was amended by Banking Laws
Amendment Act, 1983, The Banking Public Finance Institutions And
Negotiable Instrument Laws Amendment Act, 1988 And The Banking
Regulation Amendment Act, 1994.
The purpose of enacting the Banking Regulation Act, 1949 was two
fold:
1. To consolidate and amend the law related to banking companies.
2. To check the abuse of powers by managers of banks and also to
safeguard the interest of depositors and the interest of the country
in general.
Banking in India is mainly governed by:
1. The Reserve bank of India Act, 1934
2. The Banking Regulation Act, 1949 and
 3. The Foreign Exchange Management Act, 1999.

The Reserve Bank of India and the Government of India exercise control
over banks from the opening of banks to their winding up by the virtue
of powers conferred under the statutes. All the regulatory provisions are
not uniformly applicable to all the banks. The applicability of the
provisions of the three acts to a bank depends upon its constitution, that
is whether it is a statutory corporation, a banking company or a
cooperative society. To understand this further, let us first explore the
types of banks in India.

TYPES OF BANKS IN INDIA

1. Central Bank (Known as Banker’s Bank)
The national bank of India is known as RBI. It is a bank whose
responsibility it is to direct and control the nation’s banking system.
Being a government bank, it rarely does business with the ordinary
population. Every time one of the other banks has a problem, it offers
advice. It prints banknotes and provides the government with
recommendations on different monetary and credit policies.
Reserve Bank of India (RBI) is the key regulator of the banking system
in India. The RBI is the central bank of India and the primary regulatory
authority for banking. An entity intending to carry out banking business
in India must obtain a licence from the RBI. The RBI has wide-ranging
powers to regulate the financial sector, including prescribing norms for
setting up and licensing banks.

2. Commercial Bank
They accept deposits and offer short-term loans to its clients as well as
long- and medium-term loans to businesses. Long-term housing loans
are another service they offer to private citizens. There are three types of
commercial banks namely:

Public sector banks:

Public Sector Undertakings are a major type of government owned
banks in India, where a majority stake is held by the Ministry of Finance
of the Government of India or State Ministry of Finance of various State
Governments of India.
Some examples can be Punjab National Bank (PNB), Bank of Baroda
(BoB), Bank of India (BoI), Central Bank of India, Canara Bank, Union
Bank of India, Bank of Maharashtra, and State Bank of India (SBI).

Private sector banks:

Private sector banks are banks where the majority of the bank’s equity is
owned by a private company or a group of individuals. They comply
with the central bank’s guidelines yet have a unique financial system.
Some examples can be Axis Bank, HDFC Bank, Kotak Mahindra Bank,
YES Bank..etc
Foreign banks:
A foreign bank branch is a type of foreign bank that is obligated to
follow the regulations of both the home and host countries. Because the
foreign bank branch has loan limits based on the total bank capital, they
can provide more loans than subsidiary banks.
Some examples can be American Express Banking Corporation,
Barclays Bank Plc, Bank of America, Deutsche Bank, DBS Bank India
Limited, HSBC Ltd, Standard Chartered Bank, and others.

3. Cooperative Banks (set up by cooperative societies to provide

financing to small borrowers)
Cooperative societies are formed by people who come together and form
a society jointly so as to serve their common interest. These societies are
formed under the Cooperative Societies Act. When a Cooperative
Society engages in banking business it is called a ‘Cooperative Bank’.
They have to obtain a licence from the Reserve Bank of India.

4. Institutionalised Banks
Some of the examples of institutionalised banks are:
a) Life Insurance Corporation Of India (LIC)
b) General Insurance Corp Of India (GIC)
c) Unit Trust Of India (UTI)

5. Specialised Banks
These banks provide support for setting up business in specific areas of
activity only. Some of the specialised banks are:

a) Export Import Bank of India (EXIM)

b) National Bank for Agriculture & Rural Development
(NBARD)

6. Development Banks
It raises the bulk of its fund from:
a) Market borrowings by the way of bonds
b) The borrowing out of National Industrial Credit Fund of RBI
They provide medium and long-term capital for purchase of machinery
and equipment for using latest technology or for expansion and
modernisation. Development banks can be classified into two categories
a) All India Development Bank
b) State-Level Development Bank

Some of the examples of development banks or IDBI, IFCI, ICCI, SFCs,

SIDCs.

Benefits of bank
1. Bank accounts offer convenience
For example, if you have a checking account, you can easily pay by
check or through online bill pay. It’s also cheaper than buying a money
order (and you’ll have proof of bank statements that you paid your bills).
If you get an Automated Teller Machine (ATM) or debit card for the
account, you can withdraw money easily or make payments at stores. A
debit card is usually accepted for purchases anywhere credit cards are
accepted.

2. Bank accounts are safe

Your money will be protected from theft and fires. Plus, your money
will be federally insured so if your bank or credit union closes, you will
get your money back. The maximum amount of money that can be
insured is $100,000.
 3. It’s an easy way to save money

Many banks offer an interest rate when you put your money in a savings
account. The interest will help your money grow over time. Be sure to
shop around and check what fees are involved – you don’t want to wind
up paying more in fees than you are gaining in interest.

You have a checking and saving account with the same institution, you
can have your money transferred periodically from checking to savings,
putting the money aside to help grow your savings.

4. Bank accounts are cheaper

Banks and credit unions generally offer their account holders free or
low-cost services:

Cashing checks: Using a check cashing outlet really adds up. You can
deposit and cash your checks at the institution where you have a bank
account for free.
Paying bills: Without a bank account, you probably rely on check
cashing outlets, telephone bill pay or money orders—all of which have
attached fees—to pay your bills. With a checking account, you can write
checks for free or pay online at a low cost.

Transferring/wiring money: If you use a money transfer company to

wire money to another person’s account, you will pay a fee, usually a
percentage of the amount of the transfer. Depending on the amount you
want to transfer, this fee can be expensive. If you wire from your bank
account to another person’s account, your bank will usually charge a flat
rate that is generally lower than the money transfer company.

Accessing cash: When you need cash but don’t have a bank account,
you may decide to use a credit card to get a cash advance from an ATM.
The credit card company will charge you a transaction fee and interest.
If you have a bank account and an ATM or debit card, you can access
your money from your own bank’s ATM for free. Although you can
access your money from any ATM, you will likely pay a transaction fee
if you use an ATM other than your bank.

5. Bank accounts can help you access credit

Banks and credit unions can help you access credit to acquire a home, a
car, student or personal loan, because banks tend to favor existing
customers, particularly those who manage their money well. Plus, going
to small loan lenders that lend you cash quickly can be quite expensive
because they charge lending fees and high interest rates.

While bank accounts are preferred over check cashers and piggy banks,
banks will also have fees that you should be aware of. For example,
banks will charge you if you use your debit card on an ATM that is not
theirs. Also, depending on the type of account you have, you must
maintain a minimum balance of a certain amount to avoid being
charged. It’s always best to shop around for the best product that fits
your needs.

Loan
Loan is the Essential money borrowed with the promise of return within
a specific period/tenor. Loan is a sum of money that one or more
individuals or companies borrow from banks or other financial
institutions so as to financially manage planned or unplanned events. In
doing so, the borrower incurs a debt, which he has to pay back with
interest and within a given period of time.
Loans can be given to individuals, corporations, and governments. The
main idea behind taking out one is to get funds to grow one’s overall
money supply. The interest and fees serve as sources of revenue for the
lender.

Features and Benefits of Loans

There are several types of loans categorised based on various factors.

 You can choose the type of loan you wish to take based on your
requirement and eligibility.

 The lender will be the ultimate power to decide the loan amount
they wish to offer to you based on several factors, such as
repayment capacity, income, and others.

 A repayment tenure and interest rate will be associated with every

loan.

 The bank may apply several fees and charges to every loan.
  Many lenders provide instant loans that take a few minutes to few
hours to get disbursed.

 The interest rate is determined by the lender based on the Reserve

Bank of India’s guidance.

 The lender determines the requirement for security.

 A third-party guarantee can be used instead of security in some

cases.

 The loan repayments must be made in equated monthly instalments

over the pre-determined loan tenure.

 There may or may not be the option for full/part prepayment.

 Some loan types and lenders may levy a penalty for prepayment of
loans.

Types of loans
Loans can be classified further into secured and unsecured, open-end
and closed-end, and conventional types.

1. Secured loan

Secured loan is one that is backed by some form of collateral. For

instance, most financial institutions require borrowers to present their
title deeds or other documents that show ownership of an asset, until
they repay the loans in full. Other assets that can be put up as collateral
are stocks, bonds, and personal property. Most people apply for secured
loans when they want to borrow large sums of money. Since lenders are
not typically willing to lend large amounts of money without collateral,
they hold the recipients’ assets as a form of guarantee.

Benefits of Secured Loans

The secured loans offer a number of benefits for the borrower. Some of
these are:
 Low Interest Rates: Since the loan is taken against collateral, the
bank can offer loans at low interest rates. This is because the
mortgaged property minimises the risk, so the bank has faith in the
repayment capacity of the applicant.
 Higher Amount of Loans: Large loans can be taken based on the
value of the property that has been put up as collateral. It must be
 noted though, that the loan amount cannot exceed the value of the
mortgaged property (in most cases, the upper limit is 75-85%).

 Quicker Processing and Approval: The loan procedure is not time

consuming. Quick processing and approval make this a
comfortable experience.

 Flexible Loan Repayments: Secured loans give the applicants

multiple ways of repaying the loan. The applicant can pay back the
loan through ECS mandated EMIs or post-dated cheques, for
instance. They can also prepay their loan if they have additional
money on them.

 Bad Credit Score Applicants: Individuals with a bad credit score

can also avail this loan. Timely payment of a secured loan will
greatly boost the credit score of the applicant. Here are the top 5
alternatives for Bad Credit.

 Tax Deductible: In case of home loans, the interest on the loan is

tax deductable. This will save the applicant a lot of money.

 Low Minimum Income Standard: The minimum income bar for

secured loan applicants is low. This is because the applicant has
already assured the bank of their repayment capacity by
mortgaging their property.

Types of secured loans

  Home loan

Home loan are secured mode of finance that gives you the funds to build
or buy the home of your choice. Types of home loan available in India
are

 Land purchase loan – to purchase land for your home.

 Home construction loan- to build a new home.

 Home loan balance transfer – transfer the balance of your existing

home loan at a lower interest rate.

 Top up loan- can be used to renovate your existing home or have

the latest interior of your new home

 Loan against property

Loan against property is the common form of secured loan you can
pledge any commercial, residential or industrial property to avail of the
funds required . The loan amount disbursed is equivalent to a certain
percentage of the properties value and varies across lenders.

 Vehicle loan
As the name suggests, the borrowers put the vehicle purchased as
collateral. Standard vehicle loans are auto loans, car loans, boats, bikes,
and even airplanes. The procedure is the same as home loans, i.e., in
case of non-payment, the lender will sell off the collateral to cover the
losses incurred.

Vehicle loans finance the purchase of two-wheeler and four-wheeler

vehicles. Further, the four-wheeled vehicle can be a new one or a used
one. Based on the on-road price of the vehicle, the loan amount will be
determined by the lender. You may have to get ready with a
downpayment to get the vehicle as the loan rarely provides 100%
financing. The vehicle will be owned by the lender until full repayment
is made.

2. Unsecured loan
Unsecured loan that the borrower does not have to offer any asset as
collateral. With unsecured loans, the lenders are very thorough when
assessing the borrower’s financial status. This way, they will be able to
estimate the recipient’s capacity for repayment and decide whether to
award the loan or not. Unsecured loans include items such as credit card
purchases, education loans, and personal loans.

 Revolving Loan

A revolving loan is a loan that contains a credit limit, which is the

maximum sum of money a borrower can withdraw at any given time. It
is also the maximum aggregate capital a borrower can withdraw over a
specified time; the time can be 1 month, 3 months, 6 months, or any
specified time. The borrower in the interim can repay the amount partly
or wholly and withdraw again, not exceeding the predetermined limit. At
the expiry of the specified period, the borrower is obliged to refund the
amount plus any interest on the amount withdrawn. A credit card can be
considered an example of a revolving loan.

 Term loan

Term loan is a personal loan where the borrower receives a lump sum
amount, and the borrower repays the loan in predetermined fixed
installments until the loan is fully paid off at the end of its term.
Consumers usually opt for term loans for long-term investment or
purchase of fixed assets. These loans are generally offered at fixed
interest rates

 Consolidation Loan
A loan taken to pay off a pre-existing unsecured loan or credit card loan
is a consolidation loan
3. Open-End

With an open-ended loan, an individual has the freedom to borrow over

and over. Credit cards and lines of credits are perfect examples of open-
ended loans, although they both have credit restrictions. A credit limit is
the highest sum of money that one can borrow at any point.

Depending on an individual’s financial wants, he may choose to use all

or just a portion of his credit limit. Every time this person pays for an
item with his credit card, the remaining available credit decreases.

4.Close – end

With closed-end loans, individuals are not allowed to borrow again until
they have repaid them. As one makes repayments of the closed-end loan,
the loan balance decreases. However, if the borrower wants more
money, he needs to apply for another loan from scratch. The process
entails presenting documents to prove that they are credit-worthy and
waiting for approval. Examples of closed-end loans are a mortgage, auto
loans, and student loans.

4. Conventional Loans

The term is often used when applying for a mortgage. It refers to a loan
that is not insured by government agencies such as the Rural Housing
Service (RHS).
Loan Against the Insurance Schemes:

If your insurance scheme is eligible for a loan, you can avail the loan
amount from your insurer. You may also use the investment for
insurance as collateral. Generally, loans cannot be availed right from the
commencement of the insurance policy. After 3 years into the scheme,
you can apply for a loan against insurance.

Loan Against Fixed Deposits:

This is a type of loan where your fixed deposit is the collateral. For
example, if you have a fixed deposit of Rs.10 lakh in the bank, you can
avail a loan of up to Rs.8 lakh. However, the rate of interest associated
with this kind of a loan is usually higher than the fixed deposit rate.

Loan Against Mutual Funds and Shares:

Certain lenders provide loan against your mutual fund value and share
value. However, you will not be able to borrow huge amounts under this
type of loans.

A cheque is a document that tells your bank to transfer the mentioned

amount to a person or organization. There are mainly ten types of
cheques in India that you should know about.” The ten types of cheques
include:
Bearer Cheque:
A bearer cheque is the type of cheque that allows the person bearing or
carrying the cheque to the bank to receive the payment specified on the
cheque. These cheques have the words “or bearer” printed in front of the
name of the payee. It means that the amount of the cheque issued can be
either received by the payee or the bearer. It also makes a bearer cheque
transferable, as anyone who is carrying it can receive the payment. The
bank need not request the authorisation of the issuer to make the
payment of this cheque.
Order cheque:
The second type of cheque is the order cheque. An order cheque is the
one that has the words “or bearer” cancelled out. It means that only the
individual whose name is mentioned as the payee can receive the
specified sum of money. In this case, the bank does not check the
bearer’s identity before making the payment.
Crossed cheque
A crossed cheque is the type of cheque where the issuer makes two
slightly bent, parallel lines on the top left corner of the cheque, with the
word ‘a/c payee’ written. It means that the specified sum of the cheque,
regardless of who is handing it over, will only be transferred to the
individual/organisation whose name is mentioned as the payee. A
crossed cheque is also safer because it can be cashed only at the payee’s
bank.
Open cheque
An open cheque does not have the crossed lines, and hence, is also
called an uncrossed cheque. An open cheque can be cashed at either of
the banks, namely, the payer’s bank or the payee’s bank. Also, an open
cheque is transferable by the payee, which means they can make
someone else the payee. The issuer of the open cheque is required to
sign on both the front and back of the cheque.
Post-dated cheque
A post-dated cheque bears a date later than the date it was issued on. It
can only be cashed after the date specified by the payer. The post-dated
cheque can be valid after the mentioned date but not before it. Hence,
even if it is presented to the bank, the bank will not process it until the
mentioned date.
Stale cheque
A stale cheque has already passed its validity date and can no longer be
cashed. Currently, a cheque is considered valid until three months from
its issued date.
Traveller’s cheque
Issued by a bank, a traveller’s cheque can be cashed by the payee at
another bank in another country. The payment will be received in that
country’s currency. It becomes useful when you are heading on a foreign
trip and do not wish to carry too much cash. A traveller’s cheque does
not have an expiry date.
Self cheque
A self cheque has the word ‘self’ written as the payee. It is used by the
issuer to withdraw money from their bank account. A self cheque can be
cashed only at the issuer’s bank.
Banker’s cheque
A banker’s cheque is issued by the bank itself. A bank issues a banker’s
cheque on behalf of an account holder to issue payment to another
person in the same city. Banker’s cheques are only valid for three
months, however, post their validity period they can be revalidated if
certain conditions are fulfilled.
Blank cheque
A blank cheque is the one that has the sign of the issuer and no other
details are filled in. Blank cheques pose a high risk because if lost,
anyone who finds it can fill in any amount and issue it to themselves.
All about cheque:
Cheque bounce:A cheque may bounce if it has expired or if there is a
problem with the date of issuing it. Sometimes, the issuer may choose to
stop the payment. In that case, too, the cheque is considered as
dishonoured. There could be various other reasons for a bank to
dishonour a cheque.
Cancelled cheque:A cancelled cheque is a type of crossed cheque that
has two parallel lines drawn across it and the word “CANCELLED”
written between the lines. This makes it impossible for anyone to use the
cheque for unauthorized financial transactions.
Stop payment of cheque:To stop payment on a check, go to a bank
branch or contact the bank by phone and speak to a human being, not a
recording. Request a Stop Payment Order. Make sure to report the check
number, the amount, the recipient’s name, and the date on the check.
Follow up in writing.
Demand Draft
A demand draft is a negotiable instrument similar to a bill of exchange.
A bank issues a demand draft to a client, directing another bank or one
of its own branches to pay a certain sum to the specified party. A
demand draft can also be compared to a cheque.
All about demand Draft:
DD form:Demand drafts are orders of payment by a bank to another
bank, whereas cheques are orders of payment from an account holder to
the bank. A Drawer has to visit the branch of the Bank and fill the DD
form and pay the amount either by cash or any other mode, and Bank
will issue DD.
DD number:The DD number is a 6-digit numeric code, or a serial
number found at the bottom of the instrument and next to it is the
Magnetic Ink Character Recognition (MICR) code.
DD clearing time: The time frame or the clearing time of a DD varies
between banks. They are usually cleared within half an hour, or by the
end of the working day. Some banks can take up to three working days.
Also, if the DD is for a large amount, it will only be credited to a bank
account and not provided as cash.

Overdraft
An overdraft lets you borrow money through your current account by
taking out more money than you have in the account – in other words
you go “overdrawn”.
Overdraft limits:An overdraft limit is the maximum amount that banks
allow you to withdraw. For example, you might have a bank account
balance of 5,000 with an overdraft limit of 500. It means that you can
spend up to 5,500, but you can’t withdraw or request for an added
money if the payment exceeds the limit.
Overdraft loan:An overdraft loan is a type of financial instrument that
allows one to withdraw funds from the current or savings accounts even
when there is no money in the account. Almost all financial institutions,
especially banks and NBFCs, offer this function.

Pass Book By Bank:

A bank passbook is a booklet provided to bank account holders detailing

all their banking transactions. A bank passbook gives you all the
information about the banking activity in your account. A passbook was
used for accounts with a low transaction volume, such as savings
accounts.

What are the Components of a Bank Passbook?

A bank passbook contains a summary of a user’s bank account
information. It is composed of the following elements:

Bank Passbook Components

Name of the bank
Address of the bank
MICR code
IFSC code
Name of the account holder
Type of bank account
Customer ID
Address of the account holder
Bank account number
Date of opening bank account

What are the Benefits of a Bank Passbook?

Recording account statements:
A bank passbook keeps track of the account holder’s transactions. The
transactions printed on a bank passbook are permanent. When necessary,
a user can consult the transaction history in the bank passbook. It shows
the user the time and date of transactions, as well as the amount debited
and credited and the total balance.

Easily keep track of transactions:

A bank account holder can easily monitor the number of transactions
made in a given week/month/year and check the remaining balance
using a bank passbook. The transaction history demonstrates the
difference between total expenses and total savings, and the difference
between them aids in future planning.

Used to provide proof of transactions

A bank passbook can be submitted to organisations or individuals who
want to review the user’s financial statements. It can also be submitted
to human resources for verification and salary deposit.

Identifies the fraud:A false or suspicious entry in a bank passbook can

alert the bank account holder to possible banking fraud. He or she can
also notify the bank about the fraud or suspicious activity so that the
bank account can be temporarily deactivated or another measure can be
taken to protect the bank account holder from further loss.
Digital Passbook:
Transactions in a digital passbook are not processed manually
The passbook is automatically updated whenever a transaction is
initiated or completed
There is no need to visit the bank to have the transactions updated
Digital bank passbooks can be submitted for a variety of reasons
These passbooks contain a detailed account of all transactions
One can segregate the date of the transaction to check the detailed
summary of a particular transaction.

Traditional Bank Passbook:

A bank passbook is a traditional method of keeping track of the number
of transactions made and initiated by a user. It depicts all transactions,
whether they are credited or debited. It also shows where a person spent
money and who credited it to the bank account holder’s account. In a
bank passbook, everything is precisely printed. However, a user must
have the transaction printed on the bank passbook every time he or she
visits the bank to keep it up to date.

UPI:
Unified Payments Interface is an instant real-time payment system
developed by National Payments Corporation of India. The interface
facilitates inter-bank peer-to-peer and person-to-merchant transactions.
It is used on mobile devices to instantly transfer funds between two bank
accounts.
BHIM App

Bharat Interface for Money (BHIM) is an app that lets you make simple,
easy and quick payment transactions using Unified Payments Interface
(UPI). You can make instant bank-to-bank payments and Pay and collect
money using just Mobile number or Virtual Payment Address.

IMPs
Immediate Payment Service is an instant payment inter-bank electronic
funds transfer system in India. IMPS offers an inter-bank electronic fund
transfer service through mobile phones. The service is available 24x7
throughout the year including bank holidays. NEFT( national electronic
fund transfer was also made available 24x7.
The maximum amount that can transferred Is Rs 2 Lakhs per transaction.
₹1 + GST for the IMPS up to ₹1000. ₹1.50 + GST for the IMPS of
Above ₹1000 to ₹25000. For the IMPS above ₹25000, the fee will be
₹5.50 + GST.

IFSC code:
IFSC is short for Indian Financial System Code and represents the 11
digit character that you can usually see on your bank’s cheque leaves, or
other bank sponsored material.