By: Anand Kumar Singh

IPCW(Department of Commerce)

ORIGIN OF BANK
The term Bank is being used for a long time but there is no clear conception regarding
its beginning. According to one viewpoint, the Italian money lenders were known as
‘banechi’ or ‘bancherri’, because these people kept a special type of table to transact their
business, called ‘Banchi’. According to another viewpoint, the word ‘bank’ is derived from
the German word ‘banck’ which means heap or a mound. Italians started using the name
‘banco’ which meant accumulation either of ‘money’ or of ‘stock’.

MEANING OF BANK
● A bank is a financial institution which accepts deposits from the public and leads
those who need it thereby making a profit out of it.
● The lending rate of a bank is higher than the rate it pays to its depositors. A bank,
therefore, acts as a reservoir into which the idle surplus money of individuals and
households flow and from which loans are given to the needy borrowers.
● Besides this, a modern bank performs various other functions such as credit
creation, agency work and general services besides dealing in money. Using
banks and the many services they offer saves an incredible amount of time and
ensures that the funds of micro as well as macroeconomic agents “pass hands” in
a legal and structured manner. There are also other types of financial institutions
that operate just like banks.

DEFINITION OF BANK
● According to the Oxford Dictionary, “Bank is an establishment for the custody of
money, which it pays out on customer’s order”.
● According to the Indian Central Banking Enquiry Committee, “A banking company
is one which carries on as its principal business, the acceptance of money deposits
on current account or otherwise subject to withdrawal by cheque, draft or order”.
● In the words of Cairncross, “A bank is a financial intermediary, a dealer in loans
and debts”.
 ● According to the Banking Companies (Regulation) Act of India, 1949,
“Banking means the accepting, for the purpose of lending or investment, of
deposits of money from the public, repayable on demand or otherwise, and
withdrawable by cheque, draft or otherwise”.
● The Webster’s Dictionary defines Bank as, “An institution which trades in money,
establishment for the deposits, custody and issue of money as also for making
loans and discount and facilitating the transmission of remittance from one place
to another”.
● Broadly speaking, banking business implies receiving, consuming and using the
funds of the community. It accepts deposits from the public and gives loans to
them. Hence, a bank may be defined as an institution which collects surplus funds
from the public, safeguards them, and makes them available to the true owner of
fund when required. It also lends sums not required by their true owner to those
who are in need of money and can provide security.
● In short, a bank is an institution which accepts deposits withdrawable by
cheque and makes loans and advances for the purpose of earning profit.

FEATURES OF A BANK
Various features of a commercial bank are:
1. Commercial Establishment: A commercial bank is a commercial establishment which
deals in money. It accepts money as deposits and advances loan in cash and cheques.
2. Individual or Firm or Company: A bank may be an individual, a firm or a joint stock
company. A banking company refers to a company which is in the business of banking.
3. Acceptance of Deposits: A bank accepts money from the customers in the form of
deposits which are generally payable on demand or after the expiry of a specified period.
4. Provide Safety to Money: A bank provides safety to the money of its clients. It also
performs the role of custodian of funds of its customers.
5. Advancing Loans: A bank lends out money in form of advances or loans to those who
need it for different purposes. The public can borrow from banks to meet their needs and
requirements.
6. Payment and Withdrawal: A bank offers easy payment and withdrawal facility to its
clients through cheques and drafts. It also brings bank money in circulation. This money
circulation is in the form of cheques, drafts, etc.
7. Agency and Utility Services: A bank offers different banking facilities to its clients
which involve general facility services and agency services such as transfer of funds,
collection of dividend, payment on behalf of customers, etc.
8. Profit and Service Organisation: A bank being a financial intermediary is a profit
seeking institution having service oriented approach.
9. Credit Creation: A bank can create credit i.e., creation of additional money for lending.
10. Ever Increasing Functions: Banking is an evolutionary approach. A bank expands
and diversifies regularly as regards the functions, services and activities.
11. Banking Business: The main function of a bank should be to perform banking
business which should not be subsidiary of any other business.
12. Name Identity: A bank should always add the word ‘Bank’ to its name to enable
public to know that it is a bank and it deals in money and debts.

Functions of Banks
Banking Regulation Act of India, 1949 defines Banking as “accepting, for the purpose of
lending or investment of deposits of money from the public, repayable on demand or
otherwise and withdrawable by cheques, drafts and order or otherwise”. Deriving from
this definition and viewed solely from the point of view of customers, Banks essentially
perform the following functions:
1. Accepting deposits from public/others (Deposits).
2. Lending money to the public (Loans).
3. Transferring money from one place to another (Remittances).
4. Credit creation.
5. Collection and payment services.
6. Keeping valuables in safe custody.
7. Investment services and analysis.
8. Government business.
9. Other types of lending and transactions.
Deposits
Deposits are the main source of funds for commercial banks. The amount mobilised as
deposits are then lent in the form of advances. The higher the amount of deposits
mobilised, the higher is the amount of funds lent. The growth of deposits depends on
savings. Savings held in the form of currency or gold and jewelry are unproductive. For
economic growth to take place, it is essential that these savings are mobilised and
channelised for capital formation which, in turn, accelerates economic growth. Banks are
important financial intermediaries between savers and borrowers. Banks mobilise savings
by accepting deposits.

Credit Creation
Banks are a special type of financial intermediaries which not only accept and deploy
large amounts of non collateralized deposits in a fiduciary capacity, but also leverage
such funds through credit creation.

Banks are creators of credit. The creation of credit is an important function of a bank and
this function distinguishes banks from the non-banking institutions. Banks create deposits
in the process of their lending operations. When the bank mobilises savings, it lends the
amount that remains after providing for reserves. The amount lent is either deposited in
the same bank or in some other bank. For instance, when a bank extends overdraft facility
or discounts a bill of exchange, the bank first of all credits this amount in the account of
the customer, who creates a deposit. The bank, after keeping aside a certain portion of
this deposit in the form of reserves, lends this amount. This process continues and
repeats in all the banks or in the banking system as a whole. This leads to the creation of
credit, which, in turn, increases the liabilities and assets in the banking system.
For instance, a bank receives Rs. 1,000 in the form of deposits. The bank after keeping
aside, say, 10 per cent in the form of reserves, lends the remaining amount, i.e., Rs. 900.
The amount lent is either deposited in the same bank or in some other bank. The bank
again, after keeping aside reserves of 10 per cent, lends the remaining amount, i.e., Rs.
810. This process continues and repeats in all banks simultaneously leading to creation
of credit. Credit creation leads to an increase in the total amount of money for circulation.

Lending of Funds
Commercial banks mobilise savings from the surplus-spending sector and lend these
funds to the deficit spending sector. They facilitate not only flow of funds but also flow of
goods and services from producers to consumers through this function of lending.
Commercial banks facilitate the financial activities of not only the private sector but also
the government. Funds are lent in the form of cash credit, overdraft, and loan system.
Banks discount bills of exchange, give venture capital, and guarantees. Loans and
advances form around 50 per cent of the aggregate deposits of SCBs.

Ancillary Functions
Besides the primary functions of mobilising deposits and lending funds, banks provide a
range of ancillary services, including transfer of funds, collection, foreign exchange, safe
deposit locker, gift cheques, and merchant banking. Thus, banks provide a wide variety
of banking and ancillary services. Banks are distinct entities as they have fiduciary
responsibility, are highly leveraged and the future of any one bank can threaten the
integrity of the payments system which is the backbone of any modern economy.

Types of Banks:
Now let us get going and know all about the different kinds and categories of banks with
their functions in our country.

1:Central Bank:-

Every country has a central bank that regulates and takes care of other banks’
mechanisms within it. In India, we have the Reserve Bank of India, the Central Bank.
Which acts as a bank for the government, manages the monetary policy and system, and
guides other banks and institutions. Similarly, every country has their central bank, such
as Federal Reserve in the US. It also takes care of issuing the currency and supervises
overall financial affairs and systems in the country. Given that it is a general bracket and
head for the entire financial system, it is also known as the banker’s bank.

2:SCHEDULED COMMERCIAL BANKS:-

● Scheduled commercial banks are those included in the second schedule of the
Reserve Bank of India Act, 1934. In terms of ownership and function, commercial
banks can be classified into four categories: public sector banks, private sector
banks, foreign banks in India, and regional rural banks. There are 81 scheduled
commercial banks—26 public sector banks, 21 in the private sector, and 34 foreign
banks.
● Commercial banks have come into existence under the Banking companies act of
1956, which exists in rural and urban regions. As the name suggests, the main
motto of these banks is generating profit. There are both public as well as private
(Indian and foreign) commercial banks existing in this country. The primary source
of running for these banks are the only public deposits and customers.
● Examples of different types of commercial, public banks include State Bank of
India (the most significant public sector bank in India), Canara Bank, Bank of India,
etc. The private sector banks include HDFC, ICICI Bank, Axis Bank, and so on.
There are also foreign banks in India, such as HSBC, Standard Chartered bank,
etc. Commercial banks, both public and private, are present across the globe.

3:Public Sector Banks:-

● Public sector banks are banks in which the government has a major holding. These
can be classified into two groups: (i) the State Bank of India and its associates and
(ii) nationalised banks. State Bank of India The State Bank of India was initially
known as the Imperial Bank. Imperial Bank was formed in 1921 by the
 amalgamation of three presidency banks—the Bank of Bengal, the Bank of
Bombay, and the Bank of Madras. These presidency banks were created as a
charter to deal in bills of exchange payable in India and were an integral part of the
Indian treasury.
● They were taken over by the Imperial Bank of India as going concerns under a
special legislation in 1920. The Imperial Bank acted as a banker to the government
until the establishment of the RBI in 1935. Later on, it was authorised to act as the
sole agent of the RBI in places where the latter did not have its own branches. The
Imperial Bank was nationalised under the State Bank of India Act, 1955, which was
passed on May 8, 1955. The State Bank of India came into existence on July 1,
1955. This marked the beginning of the first phase of nationalisation of banks.
● The main objective of nationalisation was extending banking facilities on a large
scale, particularly in the rural and semi-urban areas. The other objectives for which
the bank was established were as follows.
➢ To promote agricultural finance and to remedy the defects in the system of
agricultural finance.
➢ To help the Reserve Bank in its credit policies.
➢ To help the government to pursue broad economic policies.

4:Nationalised Banks:-
● In 1969, fourteen big Indian joint stock banks in the private sector were
nationalised. The nationalisation was effected by an ordinance which was later
replaced by an act of parliament, known as the Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970. This was the second phase of
nationalisation.
● Six commercial banks in the private sector with deposits over Rs. 200 crore were
nationalised on August 15, 1980—the third phase of nationalisation. In all, 28
banks were nationalised from 1955–1980.
● At present, there are 12 banks in number that are nationalised, and their names
are Punjab National Bank, Bank of Baroda, Bank of India, Central Bank of India,
 Canara Bank, Union Bank of India, Indian Overseas Bank, Punjab, and Sind Bank,
Indian Bank, UCO Bank, and Bank of Maharashtra, State Bank Of India
● The major objectives of nationalisation were to widen the branch network of banks
particularly in the rural and semi-urban areas which, in turn, would help in greater
mobilisation of savings and flow of credit to neglected sectors such as agriculture,
and small-scale industries.

5:Regional Rural Banks:-

● The RRBs, also known as the Regional Rural banks, fall under sub-class
commercial banks that provide only loans for agriculture and allied activities. These
banks are established under the RRB act of 1976 and are a joint venture of the
Central Government, State Government, and Commercial banks.

● These banks’ main aim is only to focus on provisions to lending and banking
facilities for people across rural areas. Some of RRB examples include Andhra
Pragathi Grameena Bank in AP under the sponsorship of Syndicate bank, Bihar
Gramin Bank in Bihar under the sponsorship of UCO bank.

6:Cooperative Banks:-

● Types of Cooperative banks are the respective state-controlled and managed

banks under their act and regulations to promote social welfare amongst their
citizens.

● They look after affairs and giving loans for agriculture and other allied livelihood
activities within every state. The cooperative banks operate in three-tier structures:
state-level where SBI, state governments directly regulate them. These include
banks such as NABARD. Then, in the second tier, we also have district-level
cooperative banks, respectively, and the third tier includes agriculture cooperative
banks in villages.
7:Local Area Banks:-

● The Local area banks are introduced only around 1996 as the main objective to
run only in local areas to generate profits. Commercial private sector banks
manage these banks. However, not many local area banks are there in India.
Some of them include Coastal Local Area Bank in Andhra Pradesh, Subhadra
Local area bank in Kolhapur, Capital Local area bank in Punjab, and Krishna
Bhima Samruddhi Local area bank in Telangana.

8:Specialized Banks:-

● As the name suggests, few banks have come into existence only for specialized
purposes. They have different specific roles and objectives to develop the
particular cause financially. The examples under Specialized banks include Small
Industries Development Bank of India (SIDBI) to give loans for small scale
industries and units, in order to encourage them, EXIM bank for financial
assistance to give for exports and imports to other countries, NABARD to help
assist and provide finance in agricultural development, village and rural concerns.

9:Small Finance Banks:-

● The small finance banks are specifically present to look into the needs and
financial assistance of small and micro industries, farmers, and the unorganized
sector in India. The central bank of India overall governs them. A few examples of
Small Finance Banks include AU Small finance bank, Equitas small finance bank,
Fincare small finance bank, etc.

10:Payments Bank:-
 ● Payments banks are more of a new phenomenon that we have been witnessing in
the recent past. These payment banks are conceptualized and developed by the
Reserve Bank of India, where they can deposit a maximum of the amount up to
Rs. 1,00,000.

● These banks, however, cannot grant loans, lending as well as credit cards.
However, one can have access to online and mobile banking under the Payments
bank. So, one can say that almost all of them have the same types of internet
banking, online banking, retail banking, electronic banking, and other digital
methods under here too.

● Some of India’s most popular Payments banks are Airtel Payments Bank, Paytm
Payments Bank, Jio Payment Bank, India Post Payment Bank, NSDL Payment
bank, etc.

11:Exchange Banks:-

● Exchange banks are governed for foreign trade and exchanges only. They manage
foreign bill collection, discounting, and sell foreign currencies to help people
convert their money into foreign currencies. In most cases, few specialized
branches of the commercial banks take care of this function, and the separate

● exchange banks’ presence is less.

12:Investment Banks:-

● These investment banks are pretty well-known in western countries. The banks
such as Morgan Stanley, Goldman Sachs, etc., are popular investment banks.
These banks have the function of assisting and aiding individuals and institutions
to raise capital, issue securities, and invest the income.
 ● They are also quite popular for trading securities, stocks, and instruments.

Types of Banks Deposits:

There are different types of bank deposit schemes offered by banks to the public. These
schemes offer different interest rates on the deposits of the customers with certain
conditions for deposits and withdrawal of funds.
1. Saving Account
2. Current Account
3. Term Deposits
4. Recurring Deposit
5. Public Provident Fund
6. Senior Citizen Saving Scheme

Extra : Sukanya Samridhi Account, Capital Gain deposit account etc.

Types of Bank Deposits and Accounts:
1. Saving bank account
2. Term deposit
3. Current account
4. Recurring deposit
5. Others…

1-Savings Bank Account:

● As the name of this deposit suggests, it is suitable for those who have a definite
income and want to save some money.
● To understand this let us take an example: the regular salaried people incline
savings accounts and it is best suited for them as well. Generally, for opening a
savings bank account, you have to deposit a small amount as an initial deposit,
which varies from bank to bank.
 ● You can deposit money at any time in your savings account. The interest is earned
as per the rate of interest offered by the bank and is paid on the balance in your
account.
● You can deposit money in this account anytime. For withdrawing money from this
account, you can either use an ATM card, issue a cheque, or sign a withdrawal
form. Generally, there is a restriction on the number and amount of withdrawal from
the savings account.

2-Term Deposits:
● Term Deposits, popularly known as Fixed Deposit, is an investment instrument in
which a lump-sum sum amount is deposited at an agreed rate of interest for a fixed
period of time, ranging from 1 month to 5 years. Term Deposits can be availed at
financial institutions like Banks, Non-Banking Financial Companies (NBFC), credit
unions, post offices and building societies.

Characteristics of Term Deposits:

Term Deposits have unique monetary features that have made them popular among the
investment circles. The essential characteristics of term deposits are:

● Fixed rate of interest: The rate of interest for term deposits are fixed and are
not subject to fluctuations in the market.
● Safety of investment: Since interest rates of the term deposit are not affected
by the changes in the economy, it is one of the safest investment options
available.
● Preset investment period: The investor has the freedom to choose the tenor
of the investment based on the plans offered by the financial institution.
Normally the interest rate offered by the institution will be higher for a longer
 tenor. But it is advisable to compare the interest to tenor ratios before making
the investment.
● Interest Payment: The investor has the option to choose to receive the
interest income either on maturity or periodically – monthly, quarterly or
yearly.
● Wealth Generation: The stable interest received on the investment ensures
that the investors’ wealth grows even during difficult times in the market.

3-Current Account:

● A type of bank account that has lesser restrictions than a savings account in terms
of transactions and withdrawals is known as a current account.
● Another name of the current account is a demand deposit account and is most of
the opted by the businessmen for conducting their transactions smoothly.
● You should select this account type only if you are a businessman (even if an
owner of a small business) who has to perform multiple transactions daily. There
is no limit on the number of transactions from this account in one day. The overdraft
facility is also offered by the banks to its account holders.
● This means, as an account holder of such an account, you can withdraw more
money than that is in your account. In addition to this, there is no restriction to
maintain a minimum balance in this account.
● The biggest disadvantage of having a current account is that the banks do not pay
any interest on them and for maintenance and service the bank charges hefty fees.

4-Recurring Deposit:

● A special type of account wherein you do not have to deposit a lump sum amount
rather you have to deposit a fixed amount every month. This fixed amount can be
as low as Rs. 100 every month. When you want to incorporate a habit of savings,
then you should open this account. The rate of interest offered on a current deposit
varies from bank to bank and may range from 5% to 7% and different rates are
provided to the senior citizens.
 ● A recurring deposit can have different maturity ranges that may vary from six
months to 120 months. You can give an order to your bank for withdrawing a
specific amount every month, and this amount can be credited to the Recurring
Deposit account regularly. However, the bank can charge some penalty for delay
in an installment payment.
● Another special feature of an RD account is that you can take a loan up to 80% to
90% of your deposit by the use of this deposit. There is no facility for premature
withdrawal, and if you close your recurring deposit account before the date of
maturity, then you have to pay the penalty.

5-Salary Accounts:

● Although a Salary Account is also a type of Saving Account, it stands apart as your
employer opens it for you for the sole purpose of depositing your remuneration.
Unlike most accounts, where you can choose your preferred bank,
● you do not get to choose your preferred bank for your Salary Account. Companies
usually tie up with one specific bank to open Salary Accounts for their employers.
You can withdraw every last rupee deposited by your employer in this account,
which is why a Salary Account is also known as a zero-balance account.

6. NRI accounts:

● There are different types of bank accounts for Indians or Indian-origin people living
overseas. These accounts are called overseas accounts. They include two types
of savings accounts and fixed deposits -- NRO or non-resident ordinary and NRE
or non-resident external accounts.
● Banks also offer foreign currency non-resident fixed deposit accounts.
PAN Card:

PAN is a ten-digit unique alphanumeric number issued by the Income Tax Department.
PAN is issued in the form of a laminated plastic card as given below (commonly known
as PAN card):

Now we shall discuss the structure of the ten characters of PAN. For this purpose we
shall take an illustrative PAN :

BKG X D

Out of the first five characters, the first three characters represent the alphabetic
series running from AAA to ZZZ.
BLG PXXX D

The fourth character of PAN represents the status of the PAN holder

"P" stands for Individual

"C" stands for Company

"H" stands for Hindu Undivided Family (HUF)

"A" stands for Association of Persons (AOP)

"B" stands for Body of Individuals (BOI)

"G" stands for Government Agency

"J" stands for Artificial Juridical Person

"L" stands for Local Authority

"F" stands for Firm/ Limited Liability Partnership

"T" stands for Trust

Illustrative PAN : BLGPX S X D

Fifth character of PAN represents the first character of the PAN holder's last
name/surname in case of an individual. In case of non-individual PAN holders, the fifth
character represents the first character of the PAN holder's name.
Illustrative PAN : BLGPSxxxx

Next four characters are sequential numbers running from 0001 to 9999.

Illustrative PAN : BLGPS XXXX D

Last character, i.e., the tenth character is an alphabetic check digit.

➢ Utility of PAN:
● PAN enables the department to identify/ link all transactions of the PAN
holder with the department. These transactions include tax payments,
TDS/TCS credits, returns of income, specified transactions,
correspondence etc, and so on. It facilitates easy retrieval of information of
PAN holders and matching of various investments, borrowings and other
business activities of PAN holders.

When is a PAN Card Used?

Apart from the Income Tax Purposes, a PAN Card is used in the following cases-

Identity Documentation:

Aside from an AADHAR card or voter ID card, you can use a PAN card as proof of identity.
PAN cards are accepted for a variety of financial transactions.

Returns on Income:

Individuals and entities who are eligible to file IT returns must have a PAN card.

Claim on income tax returns:

There are times when the TDS deducted exceeds the actual tax to be paid. In such cases,
the excess amount can be claimed by linking the PAN card to the taxpayer’s bank
account.

Open a bank account:

You can easily open a bank account by submitting the necessary documents, such as a
PAN card

For real estate purposes:

A PAN card is required as proof when buying, renting, or selling property.

To acquire a loan:

At the time of loan application, you must submit all required documents, including your
PAN card. A PAN card is required for any type of loan, whether it is an education loan, a
personal loan, or another.

For fixed deposits:

A PAN card is required if you want to invest an amount of more than Rs. 50,000 as a
Fixed Deposit. It is required as the bank will deduct TDS on the FD interest amount.

For telephone connections:

If you want to get a new phone or mobile connection, you must provide your PAN number
to the cellular operators.

To buy jewelry:

You must submit your PAN card details to buy jewellery valued at more than Rs 5,00,000

Foreign Exchange:
You must submit your PAN card details to the money exchange institution if you want to
convert your Indian currency into foreign currency.

For the purpose of investment:

If you intend to invest in securities, you must provide your PAN details to the relevant
authorities for transactions exceeding Rs. 50,000. PAN card information is also required
for mutual funds, debentures, and equities.

Purchase of goods & services:

The purchaser or seller must provide his or her PAN card information for transactions
involving more than Rs. 2 lakh in the purchase or sale of goods and services.

ADDRESS PROOF:

The term proof of address is pretty self-explanatory: refers to a document that verifies
where you live.

Also known as proof of residence, it is required by banks as a security measure to make

sure that you are not lying about where you live.

They essentially want to be sure that they are able to send communications to you via
regular post and be able to find you if necessary.

Certain criteria are essential to make sure that your proof of address is valid and will be
accepted by your bank:

● It should be issued in your name and match your government-issued identification

● The proof of address must contain your current residential address
● The document needs to be sent by a recognized authority and shows their logo,
name, and information
 ● Your proof of address needs to be clearly dated. Generally, banks will request that
the document provided is dated within the last three months, but this rule can differ
depending on the bank or the type of document you are submitting.

What are the accepted list of address proof?

For Resident Indian, NRI Mariner & PIO Residents –
This list is applicable for the customers whose KYC is not processed, on-hold, rejected &
incomplete/old KYC.
● Aadhaar Card
● Voter ID
● Passport
● Driving License

For NRI & PIO non-residents –

This list is applicable for the customers whose KYC is not processed, on-hold, rejected &
incomplete/old KYC.
● Local Government ID
● Letter Issued by Indian Embassy/Notary Public
● Passport
● Driving License
● Electricity BillLandline Bill
● Gas Bill
● Bank Statement

KYC NORMS:
Since 2004, the Reserve Bank of India made it compulsory for all Indian financial
institutions to verify both the identity and address of all customers carrying out financial
transactions with them. Thus, the KYC process was introduced by the RBI as the only
mode of verification.The KYC Policy consists of the following four key elements.

1. Customer Acceptance Policy

2. Customer Identification Procedures

3. Monitoring of Transactions

4. Risk Management.

What is KYC?

● KYC means to ‘know your customer’ which is an effective way for an institution to
confirm and thereby verify the authenticity of a customer.
● For this, the customer is required to submit all KYC documentation before investing
in various instruments. All financial institutions are mandated by the RBI to do the
KYC process for all customers before giving them the right to carry out any financial
transactions.
● Whether the customer uses KYC online verification or opts for offline KYC, this is
a simple one-time process.

The significance of KYC

● KYC is an important tool as it looks after the financial bodies and keeps illegal
activities in check.
● Many non-individual customers use financial services like trading and mutual fund
investment. With KYC, banks have the right to verify the legal status of that entity
which also includes cross-checking customers’ operating addresses and verifying
the identities of their beneficial owners and authorized signatories.
● Additionally, the KYC process also requires the nature of employment as well as
the business carried out by the customer which is useful in verifying the authenticity
of an individual and/or company.

Types of KYC

There are two types of KYC verification processes. Both are equally good, and it is simply
a matter of convenience whether one chooses to opt for one type over the other. Both are
as follows:
 ● Aadhar-based KYC: This verification process is done online, making it highly
convenient for those with a broadband or internet connection. Here, the customer
needs to upload a scanned copy of their original Aadhar card. If the customer
wishes to invest in a mutual fund, with Aadhar based KYC the opportunity to do
so is only up to ₹50,000 a year.
● In-Person based KYC: If the customer wishes to invest more in mutual funds
per year, they will be required to carry out an in-person verification KYC which is
done offline. To do so, the customer can choose to visit a KYC kiosk and
authenticate their identity using Aadhar biometrics or can call the KYC
registration agency to send an executive to their home/office to carry out this
verification.

Importance of carrying out KYC

● KYC is essentially required if the customer wants to carry out any kind of financial
transaction.
● After the verification process, the customer gives the financial institution that has
conducted the test information about their identity, address, and financial history.
● This can aid the bank in knowing that the money the customer chose to invest is
not one so for any money laundering related purpose.

When does KYC apply?

KYC will be carried out for the following but is not limited to:

● Opening a new account.(deposit/lending)

● Opening a subsequent account where documents as per current KYC standards
are not submitted while opening the initial account.
● When the bank feels it is necessary to obtain additional information from existing
customers based on the conduct of the account.
● After periodic intervals based on instructions received from RBI.

When there are changes to signatories, mandate holders, beneficial owners, etc.
LOAN:

What Is a Loan?
The term loan refers to a type of credit vehicle in which a sum of money is lent to another
party in exchange for future repayment of the value or principal amount. In many cases,
the lender also adds interest or finance charges to the principal value which the borrower
must repay in addition to the principal balance.

Loans may be for a specific, one-time amount, or they may be available as an open-
ended line of credit up to a specified limit. Loans come in many different forms including
secured, unsecured, commercial, and personal loans.

● A loan is when money is given to another party in exchange for repayment of the
loan principal amount plus interest.
● Lenders will consider a prospective borrower's income, credit score, and debt
levels before deciding to offer them a loan.
● A loan may be secured by collateral such as a mortgage or it may be unsecured
such as a credit card.
● Revolving loans or lines can be spent, repaid, and spent again, while term loans
are fixed-rate, fixed-payment loans.
● Lenders may charge higher interest rates to risky borrowers .

Types of Loans

Loans come in many different forms. There are a number of factors that can differentiate
the costs associated with them along with their contractual terms.

1:Education Loan:
 ● An education loan is a sum of money borrowed to finance post-secondary
education or higher education-related expenses.
● Education loans are intended to cover the cost of tuition, books and supplies, and
living expenses while the borrower is in the process of pursuing a degree.
● Payments are often deferred while students are in college and, depending on the
lender, sometimes they are deferred for an additional six-month period after
earning a degree. This period is sometimes referred to as a "grace period."
● Although there are a variety of education loans, they can be broken down generally
into two basic types: federal loans sponsored by the federal government and
private loans.

Consumer Durable loan:

A consumer durable loan is a credit/finance option for the purchase of household
appliances, electronic goods, appliances and even personal devices.

These include television sets, air-conditioners, home theater systems,refrigerators,

laptops, mobile phones, cameras and even modular kitchens.

What do lenders look for before offering you a consumer durable loan?

Lenders check your annual income and credit history. Since consumer durable loans are
unsecured loans, lenders specifically look at your repayment history and CIBIL Score.
It is advisable to monitor your CIBIL Score on a regular basis and make sure there are no
errors and the overall report looks favorable to the lender.

What are the typical interest rates and processing fees across categories?

Interest rates for a consumer durable loan varies from lender to lender and ranges from
12% to 22%. Some lenders also offer 0% interest based on their promotional offers. A
nominal processing fee ranging from 1-3% of the loan amount is charged by most lenders.
Which are the documents required?

Documents that are required to seek a consumer durable loan vary from lender to lender.
Generally the list of documents includes: Identity proof (PAN Card, Voter’s ID, Aadhar
Card etc.), Address proof (Passport, Driver’s License, Electricity Bill etc.) and Income
proof (latest salary slip or last ITR file).

Vehicle Loan
A Vehicle Loan is a loan that allows you to purchase two and four wheelers for personal
use. Typically, the lender loans the money (making a direct payment to the dealer on the
buyer’s behalf) while the buyer must repay the loan in Equated Monthly Instalments
(EMIs) over a specific tenure at a specific interest rate. The EMI comprises a portion of
the principal amount and the interest component. Once you repay the loan in full, the
lender transfers the vehicle registration in your name.

You can also apply for a Vehicle Loan to buy these vehicles to transport goods or
company personnel. Common examples of commercial vehicles include buses, trucks,
tractors, tippers, cabs, etc.

Your eligibility for a Vehicle Loan depends on your credit score and net (in hand) monthly
income. Most lenders offer 75% to 100% of the vehicle's on-road price, based on its type
and price. You can also get a loan to buy pre-owned cars and other previously used
vehicles.

Types of Vehicle Loans in India

Today, you can take on a Vehicle Loan to buy various kinds of vehicles in India. Below
are the most common types of Vehicles Loans offered by Indian lenders.

• Car Loans
You can get a Car Loan to purchase a brand-new car of your preferred brand. Lenders
generally offer up to 90% financing of the car's on-road price, while you have to pay the
remaining 10% as a down payment. The on-road price of a new car includes the ex-
showroom price, Regional Transport Office (RTO) registration charges, insurance costs,
road tax, etc. A Car Loan generally comes with a seven-year repayment tenure. You can
repay the Car Loans in affordable EMIs over your chosen tenure.

• Two-Wheeler Loans

A Two-wheeler is an excellent vehicle that allows you to navigate traffic, especially in a

densely-populated city. It is compact, requires less fuel and helps you cover shorter
distances comfortably. With Two-Wheeler Loans, you can buy geared motorbikes and
non-geared scooters. Most lenders offer up to 100% financing on Two-Wheeler Loans,
with a maximum repayment tenure of five years. The maximum financing offered on such
loans is up to Rs 10 Lakh. Once again, you need to provide your income proof and credit
scores to be considered for this loan.

• Pre-owned Car Loans

Another type of Vehicle Loan you can opt for is a pre-owned Car Loan. Purchasing a
pre-owned car is a cost-efficient alternative to buying a brand-new car. Lenders generally
offer up to 75% financing against pre-owned cars. The car is hypothecated with the lender
till the repayment period ends and you repay all EMIs. However, the car's age and the
new repayment period should not exceed eight years.

What Are The Features Of A Vehicle Loan?

The following are some of the salient features of a Vehicle Loan.

• High-value financing

Lenders usually offer vehicle financing starting from 75% to 100%. As such, you need not
worry about putting down hefty down payments.

• Competitive interest rates

Vehicle Loans are secured loans, i.e., the purchased vehicle serves as collateral with the
lender until you repay the loan in full. Due to this secured nature, lenders typically levy a
lower interest rate against these loans.

• Speedy disbursals

Lenders typically disburse the funds directly to the vehicle dealer, allowing you to
purchase and register your vehicle instantly.

• Flexible repayment terms

Repayment tenures range from a year to 84 months (7 years), depending on the type of
Vehicle Loan you need. Two Wheeler Loans and Commercial Vehicle Finance come with
a five year repayment period, while you can repay your new Car Loan over seven years.

• Eligibility criteria

You can apply for the loan as long as you can show the minimum net monthly income
(across the corresponding Vehicle Loan) and a good credit score exceeding750 points.

• Loan processing and prepayment

Lenders levy minimal loan processing charges against Vehicle Loans. You can also
prepay your loan before the stipulated tenure without incurring any penalties.

• Hassle-free documentation

Most lenders allow you to apply for a Vehicle Loan online without any physical
documentation. You only need to provide scanned copies of your ID, address, and income
proof documents.

HOUSING LOAN

A housing loan is a secured loan that is obtained to purchase a property by offering it as

collateral. Home loans offer high-value funding at economical interest rates and for long
tenors. They are repaid through EMIs. After repayment, the property's title is transferred
back to the borrower.
What are the types of Housing Loans available in India?

In India, financial institutions offer different types of home loans to suit the specific needs
of customers.

● Home Loans
This is the most common type of home loan. As the name suggests, these loans
are meant for buying a new apartment, row house, or bungalow, from a developer
or a development authority. You can use this type of loan to purchase under-
construction or ready properties.
● Home Construction Loan
You can avail a home construction loan if you already own a plot and require funds
for the construction of the house on that land.
● House Renovation Loan
If you already own a house and want to renovate it, you can apply for a house
renovation loan. You can use a house renovation loan for painting, tiling, roof
repairs, etc.
● Home Extension Loan
As your family grows, you may need a bigger house to accommodate all the
members comfortably. A home extension loan could be helpful in such a situation.
You can get this type of loan to fund the cost of adding a new room/floor to your
home, extending the kitchen, building a new bathroom, etc.
● Plot Loan
If you wish to buy a plot with the intention of constructing your own home in the
future, you can avail a plot loan.
● Balance Transfer Loan
Housing Finance Companies (HFCs) offer this unique service that allows you to
transfer your existing home loan from one lender to another. A Balance Transfer
is usually done to get loans at a lower interest rate, flexible repayment terms and
some other benefits.

Eligibility Criteria for Home Loans

 ● Current age & loan repayment tenure
Your age plays a vital role in determining home loan eligibility. The younger you
are, the better your chances of getting home loan approval. Also, when you are
young, you can get a loan for a longer duration.
● Financial profile of the customer
Income stability and quantum of income significantly impact the amount you can
borrow. Whether you are a salaried employee or self-employed, you must have a
steady income.
● Credit score
A high credit score and clean repayment records will enhance your chances of
getting a faster loan approval.
● Other financial obligations
Lenders evaluate the existing liabilities such as personal loans, credit card bills,
car loans, etc., to ensure that you have the financial capacity to repay the home
loan. If you have no liabilities, you may get your loan approved without any hassles.

SHORT-TERM FINANCE

Definition: Short term refers to the time period of less than 12 months – the current fiscal
year.

Examples: Examples of short-term finance include family and friends, overdraft, trade
credit, debt factoring and microfinance providers.

Amount: Short-term finance deals with rather small amounts of money.

Purpose: Mainly for Revenue Expenditure. Most short-term finance is used to help a
business maintain positive cash flow, and help manage cash-flow problems. It will be
used to purchase raw materials, pay wages to production workers, pay trade credit,
interest on a bank loan, etc.
MEDIUM-TERM FINANCE

Definition: Medium term refers to the time period of more than 12 months but less than
five years.

Examples: Examples of medium-term finance include hire purchase, leasing and sale-
and-leaseback.

Amount: Medium-term finance deals with fairly large amounts of money.

Purpose: Mainly for lower Capital Expenditure. Most medium-term finance is used to
purchase cheaper Fixed Assets such as machinery, equipment, vehicles, etc.

LONG-TERM FINANCE

Definition: Long term, either debt or equity, refers to the time period of more than five
years.

Examples: Examples of long-term finance include long-term bank loans, mortgage and
debentures (bonds). Borrowing for the long-term means that the business does not expect
to repay this debt in less than five years.

Amount: Long-term finance deals with very large amounts of money.

Purpose: Mainly for higher Capital Expenditure. Most long-term finance is used to
purchase expensive Fixed Assets such as land, buildings, etc. The longer the time period,
the harder it becomes to plan effectively. Some business activities need huge amounts
of money and the business will invest this money over several years, e.g. building a new
factory, international expansion, or acquiring or taking over another business.
MICROFINANCE

Microfinance, also called microcredit, is a type of banking service provided to unemployed

or low-income individuals or groups who otherwise would have no other access to
financial services.

● Microfinance is a banking service provided to unemployed or low-income

individuals or groups who otherwise would have no other access to financial
services.
● Microfinance allows people to take on reasonable small business loans safely, and
in a manner that is consistent with ethical lending practices.
● The majority of microfinancing operations occur in developing nations, such as
Uganda, Indonesia, Serbia, and Honduras.
● Like conventional lenders, microfinanciers charge interest on loans and institute
specific repayment plans.
● The World Bank estimates that more than 500 million people have benefited from
microfinance-related operations.

BANK OVERDRAFT
Bank overdraft is a type of financial instrument that is provided to some customers by the
bank in the form of an extended credit facility, which comes into effect once the main
balance of the account reaches zero.

In other words, bank overdraft is an unsecured form of credit that is mainly used for
covering short term cash requirements.

Banks offer a credit limit to the bank customers based on their relationship with the bank.
The bank levies separate interest and charges towards non-maintenance of account. The
interest rate for the overdraft facility may vary from bank to bank.

Features of Bank Overdraft

Following are the features of bank overdraft facility:

1. Banks offer overdraft facilities on a predetermined limit which differs from borrower to
borrower.

2. In an overdraft account the withdrawal or deposit of an amount can be done anytime

upto the specified limit.

3. The bank charges an interest on the overdraft amount which is calculated on a daily
basis and is billed monthly to the borrower's account. There is an increase in interest if
the borrower defaults in paying the amount.

4. Banks do not charge prepayment penalty on the borrowers in the event of loan
repayment before the tenure. This is a feature that is different from other kinds of loans.

5. The system of EMI is not applicable in bank overdraft accounts. Borrowers can repay
the amount by paying off different values each time.

6. There can be joint borrowers of an overdraft loan and both the applicants are equally
responsible for repaying the borrowed amount.

Types of Bank Overdrafts

There are two types of bank overdraft accounts

1. Authorized Bank Overdraft: In this type of overdraft account there is arrangement made
in advance between the account holder and the bank. Both the parties mutually agree on
a limit which can be used for all the payments and a daily, monthly or yearly service fee
that can vary from bank to bank.

2. Unauthorized Bank Overdraft: This type of overdraft occurs when the bank account
holder has spent more than his available balance without prior authorisation or any such
arrangement with the bank or if there was an arrangement done before but the limit of
overdraft is exceeded.

Advantages of Bank Overdraft

Following are the advantages of bank overdraft:

1. Helps in managing the availability of cash for a business or an individual.

2. Helps in fulfilling urgent cash requirements.

3. Interest needs to be paid only on the amount that is utilized and not the total limit.

4. There is less amount of paperwork involved in availing bank overdraft.

5. There is no requirement of collateral.

Disadvantages of Bank Overdraft

Following are some of the disadvantages of the bank overdraft:

1. Higher interest rate charged for the loan facility availed.

2. It is offered only to the bank account holders.

3. The limit offered depends upon the financial position of the individual or business.

4. The interest rate is not fixed and changes frequently.

5. Is not an ideal option for long term financing.

CASH CREDIT

A Cash Credit (CC) is a short-term source of financing for a company. In other words, a
cash credit is a short-term loan extended to a company by a bank. It enables a company
to withdraw money from a bank account without keeping a credit balance.

Cash credit is essentially a form of working capital loan that can be availed by the
business entities. It is the credit that is allowed to the businesses over their current
account balance for a period of time. Businesses can borrow amounts over and above
their account balance up to the agreed or permissible borrowing limit. Interest will be
charged by the bank as per its guidelines and agreed terms between the borrower and
the lender only on the amounts withdrawn and not on the entire borrowing limit.

The borrowing limit allowed to the borrower is determined based on many factors like,
 ● Past track record
● Funds required by the borrower
● Repayment capacity of the borrower
● Current assets and current liabilities position of the business organization
● Collateral or security provided for the cash credit facility
● Credit profile of the borrower

Features of Cash Credit Facility

The fact is that in today’s world, no organization can survive without extending credit to
its debtors or vice versa. This many times leads to a cash crunch in the organization for
immediate payments to be made or immediate working capital needs. Hence, the cash
credit facility of great importance to the business organizations. Some of the highlights of
this facility extended to the businesses are discussed below.

Nature and type of loan

Cash credit facility, as mentioned earlier, is in the nature of a short term loan that can be
extended to the business organizations to meet their working capital needs. It can also
be in the colour of the overdraft facility or a line of credit. It is a secured loan provided to
the businesses. Being secured in nature, this type of loan can be processed faster and
with more ease as compared to unsecured loans.

Tenure

Cash credit facility is sanctioned to a borrower for a period of 12 months or 1 year at a

time. In certain cases, this tenure can also be determined on a quarterly basis. This period
is renewable upon completion, if needed, as per the agreed terms between the borrower
and the lending bank.

Repayment schedule

The repayment schedule for the cash credit facility is very flexible. Borrowers can repay
this loan on EMI basis either as monthly payments or quarterly payments as agreed by
both the parties. Businesses are expected to adhere to payment schedules in order to
avail uninterrupted cash credit facility.

Interest

Cash credit facility is favourable as compared to the traditional business term loans as
the interest charged on cash credit facility is not on the entire amount of the borrowing
limit. It is charged only on the amount borrowed during the tenure of the loan.

Interest is calculated on the daily closing balance of the account.

Collateral

The bank usually needs collateral to extend this facility to the business organizations. The
borrowing limit is usually determined to a percentage of the collateral provided. In most
cases, collateral for a cash credit facility is taken to the inventory, current assets or fixed
assets of the business. For non-manufacturing businesses, collateral can be any
adequate asset as agreed between the borrower and the lender.

Bank charge

The banks charge a certain amount of fees or charges for providing this cash credit facility
to the borrowers even if this facility is left unused during the tenure of the short term loan
provided. This charge is for the funds that are blocked or reserved for the borrower for
the cash credit facility extended by the bank which would have been otherwise invested
elsewhere.

Limitless withdrawals during the tenure

The business entity is allowed limitless withdrawals during the tenure of the facility or this
loan. However, the borrower should bear in mind that the borrowing limit allowed cannot
be exceeded.

Benefits of Cash Credit Facility

Cash Credit facility is a real boon to the business organizations. Some of the benefits of
this facility extended to the businesses are discussed below.

● Excellent source to meet working capital needs

 ● Easy access to funds or liquidity
● Faster processing due to this facility being in the nature of a secured loan.
● Renewable tenure
● Flexible repayment options
● Reduced interest payment as interest is charged only on the amounts
borrowed from the total limit extended
● Multiple withdrawals
● Tax benefits for the interest charged on such loans

Disadvantages of cash Credit Facility

Although considered to be a favorable and an easy source of finance to the borrowers,

cash credit facilities do have certain disadvantages.

Some of these advantages are discussed below.

● Higher rate of interest as compared to traditional loan options

● It is considered to be a temporary source of finance and cannot be relied upon
for long term purposes
● Renewal of cash credit facility each time after completion of 12 months can make
it a cumbersome process and will require extensive paperwork each time.
● Since this facility is extended based on the past track record of the business
organization, it becomes difficult for newer businesses to procure such a facility.

MORTGAGE:

When property, land or any other commodity( Immovable) is used as collateral to borrow
money or to take a loan from a lender, it is known as Mortgage. In simpler terms, when a
person borrows money from a lender (bank loans) and signs up an agreement where
he/she gets cash in exchange for a real estate property as a guarantee with the bank until
the entire amount is repaid is called a mortgage.
A mortgage is a loan from a bank or other financial institution that helps a borrower
purchase a home. The collateral for the mortgage is the home itself. That means if the
borrower doesn’t make monthly payments to the lender and defaults on the loan, the
lender can sell the home and recoup its money.

A mortgage loan is typically a long-term debt taken out for 30, 20 or 15 years. Over this
time (known as the loan’s “term”), you’ll repay both the amount you borrowed as well as
the interest charged for the loan.

REVERSE MORTGAGE:

A reverse mortgage loan, like a traditional mortgage, allows homeowners to borrow

money using their home as security for the loan. Also like a traditional mortgage, when
you take out a reverse mortgage loan, the title to your home remains in your name.
However, unlike a traditional mortgage, with a reverse mortgage loan, borrowers don’t
make monthly mortgage payments. The loan is repaid when the borrower no longer lives
in the home. Interest and fees are added to the loan balance each month and the balance
grows. With a reverse mortgage loan, homeowners are required to pay property taxes
and homeowners insurance, use the property as their principal residence, and keep their
house in good condition.

With a reverse mortgage loan, the amount the homeowner owes to the lender goes up–
not down–over time. This is because interest and fees are added to the loan balance
each month. As your loan balance increases, your home equity decreases.

A reverse mortgage loan is not free money. It is a loan where borrowed money + interest
+ fees each month = rising loan balance. The homeowners or their heirs will eventually
have to pay back the loan, usually by selling the home or by any other way.

HYPOTHECATION:
 ● Hypothecation occurs when an asset is pledged as collateral to secure a loan. The
owner of the asset does not give up title, possession, or ownership rights, such as
income generated by the asset.
● Hypothecation occurs most commonly in lending, where the movable serves as
collateral but the bank does not have any claim on cash flows or income generated
from it unless the borrower defaults.
● Margin lending in brokerage accounts is another common form of hypothecation
found in securities trading and investing.

PLEDGE:
The bailment of goods as security for payment of a debt or performance of a promise is
called ‘pledge’. The bailor is in this case called ‘pawnor’. The bailee is called ‘pawnee’.
Example:
Joseph is in urgent need of money so he deposits his gold watch to Michael as security
for the money lent. This is a case of pledge whereby a gold watch is bailed as a security
for the amount lent. Here, Joseph is the pawnor and Michael is the pawnee.

Characteristics of Pledge

The essential characteristics of the pledge are given as under:

 1. Bailment of property for securing the payment of amount lent or performance of a
promise.
2. The asset is delivered to the pawnee by the pawnor as collateral, in pursuance of
a contract and upon a condition to return on the realisation of debt or performance
of the promise.
3. The subject matter of the contract is the asset or property given as collateral.
4. The property pledged with the pawnor must be in existence.

The ownership of the asset remains with the pawnor, accept in some circumstances,
where the pawnee gets the right to sell the asset pledged. Further, the pawnee is obliged
to take reasonable care of the asset pledged.

AGRICULTURAL LOAN:

Agricultural loans are offered by banks, microfinance institutions and also government
agencies to help develop India's agricultural sector. These loans can be availed to finance
agricultural projects such as purchasing land, upgrading or buying farm machinery,
constructing irrigation channels, building grain storage sheds and more.
Features of Agriculture Loan

● End-use Flexibility: Agricultural loan can be availed to meet a variety of expenses

related to farm activities, such as to purchase new farmland/ cattle or to manage
the operating costs and other allied activities
● Various Types: Several types of agricultural loan exist on the basis of end use as
well as the repayment tenure
● Minimal Documentation: Generally, the agricultural loan can be availed with
simple and minimal documentation
● Collateral Optional: Both secured and unsecured agricultural loans are offered
on the basis of loan quantum and applicant profile

Types of Agriculture Loan

Following are the major types of agricultural loans offered by various banks and other
lenders in India.

On The Basis of Loan Tenure

● Crop Loan/ Kisan Credit Card (Retail Agri Loan): Kisan Credit Card/ Kisan Card
is an ideal agriculture loan option to meet short-term credit requirements, such as
expenses resulting from the cultivation of crops, post-harvest activities,
maintenance of farm equipment, etc. The card is generally available in the form of
an electronic RuPay Card, which the farmers can use to draw money from ATMs
to make the required purchase. Thus, it provides convenient credit to meet your
daily farm requirements.
● Agriculture Term Loan: This refers to the long-term loans of up to 48 months
offered by various lenders to meet agricultural expenditures that are generally not
seasonal in nature. The loan amount can be used to purchase new machinery or
upgrade existing ones, install solar power, windmills, etc. Banks generally allow
repayment tenure of 3 to 4 years for this loan, so that you can pay back the
borrowed amount back in monthly/bi-annual/yearly installments as per the
borrower’s convenience.
On The Basis of End Use

● Farm Mechanization Loan: This loan can be used to purchase new machinery,
repair/ replace old ones, purchase tractors or harvesters, or any other agricultural
equipment. While some banks provide a general-purpose loan, others have
categorized these loans into different types based on the end-use. For example,
the State Bank of India offers tractor loans, combine harvester loans, and loans for
irrigation equipment.
● Solar Pump Set Loan: This agricultural loan is offered for the purchase of a
photovoltaic pumping system for small irrigation projects. It is generally a long-term
loan with a repayment tenure of up to 10 years.
● Loan for Allied Agricultural Activities: This loan is offered to farmers to meet
working capital requirements and long-term investment needs for allied agricultural
activities.

Other Loan Types

● Horticultural Loan: This agricultural loan is given for the development of the land
for setting up orchards or vegetable farms, clearing of undergrowth or wild trees,
minor irrigation activities, setting up boundary walls/fencing, and other horticultural
reasons.
● Agricultural Gold Loan: This loan is provided to farmers against the pledge of
gold ornaments. It may be offered for crop cultivation as well as for other
agricultural purposes. This loan features relatively low-interest rates and helps
farmers unlock the value of their gold jewellery that is usually lying idle in the house
or bank locker.
● Forestry Loan: This agricultural loan is given for raising crops that grow on trees.
Like horticulture loans, it can be given to clear the undergrowth or wild trees, turn
barren land into cultivable land, prepare land by setting up irrigation channels, and
so on.

CASHLESS BANKING:
A simplified explanation of cashless banking is a type of banking that is made without
using cash. Bank transfers, credit card payments, mobile payments and digital wallets
are all examples of cashless banking or payment. The customer doesn't need to have
any cash on them to complete the transaction.

Cashless Payment methods

● Cheque. The cheque is one of the oldest methods of cashless payment. ...
● Demand Draft.
● Online Transfer- NEFT or RTGS.
● Credit Card or Debit Card.
● E-Wallets.
● Mobile Wallets.
● UPI Apps.
● Gift Card.
● Aadhaar Enabled Payment System
● Unstructured Supplementary Service Data (You can use USSD cashless option if you
don’t have a smartphone or internet connection. Unstructured Supplementary Service Data is
mobile banking service. From any mobile phone, you can dial *99# and use this service. You can
do all these things which are available to a person with smartphone and internet connection. Almost
all banks including SBI, ICICI,BOB, Axis Bank and PNB supports USSD payment option .)
● Etc….

E-BANKING:
Banks give administrations or bank services to draw in clients, from giving advances,
issuing of debit cards and credit cards, computerised monetary services, and surprisingly
personal services or administrations. Even so, some fundamental present-day
administrations are presented by many commercial banks.

Electronic banking has many names like web-based banking, e-banking, virtual banking,
or web banking, and online banking. It is just the utilisation of telecommunications
networks and electronic networks for conveying different financial services and products.
Through e-banking, a client can acquire his record and manage numerous exchanges
utilising his cell phone or personal computer.

Services Under E-Banking:

Mobile Banking:

Mobile banking (otherwise called M-banking) is a name utilised for performing account
exchanges or transactions, bill payments, credit applications, balance checks, and other
financial exchanges through a mobile phone like a Personal Digital Assistant (PDA) or
cell phone.

Electronic Clearing System (ECS):

The Electronic Clearing System is a creative provision for occupied individuals. With this
provision, an individual’s credit card bill is consequently charged from the same
individual’s savings bank account, so one doesn’t have to stress over missed or late
payments.

Smart Cards:

A smart card is a card that stores data on a microchip or memory chip or a microprocessor
in lieu of the magnetic stripe found on debit cards and credit cards. Smart cards are not
utilised for transferring or moving monetary data alone, but also they can be utilised for
an assortment of identification grounds. Exchanges made with smart cards are scrambled
or encrypted to shield the exchange of data from one party to another. Each encoded
exchange can’t be hacked and doesn’t transmit any extra data past what’s required for
finishing the single exchange or transaction.

Electronic Fund Transfers (ETFs):

Electronic fund transfer (EFT) is the electronic exchange of cash starting with an
individual account in the bank to another individual account of the same bank, or within
or with other financial institutions or with multiple institutions, by means of personal
computers based frameworks, without the immediate intercession of bank staff.
Telephone Banking:

Telephone banking is an assistance given by a bank or other monetary foundation or

other financial institutions, that empower clients to perform via telephone a scope of
monetary exchanges which don’t include cash or financial instruments, without the need
to visit an ATM or a bank branch.

Internet banking:

Web-based banking is an assistance presented by banks that permits account holders to

get their record information by means of the web or the internet. Web-based banking or
Internet banking is otherwise called “Web banking” or “Online banking.”

Internet banking through customary banks empowers clients to play out every standard
exchange, for example, bill payments, balance requests, stop-payment requests, and
balance inquiries. Some banks even proposition online credit card and loan applications.

Account data can be acquired day or night, and should be possible from any place.

Home banking:

Home banking is the most common way of concluding the monetary exchange from one’s
own home as opposed to using a bank’s branch. It incorporates making account requests,
moving cash, covering bills, applying for credits, and directing deposits.

Significance of E-Banking:

Importance to clients:

● Lower cost per exchange: Since the client doesn’t need to visit the branch for
each exchange, it saves him both time and cash.
● No topographical hindrances: In conventional financial frameworks, geological
distances could hamper specific financial exchanges. Nonetheless, with e-
banking, geological obstructions are diminished.
● Convenience: A client can get to his record or bank account and execute from
any place at any time.
Importance to Businesses:

Better efficiency: Electronic banking further develops usefulness. It permits the

computerisation of ordinary, regularly scheduled payments and provides further banking
activities to upgrade the efficiency of the business.

Lower costs: Usually, costs in financial relationships and connections depend on the
assets used. Assuming that a specific business needs more help with deposits, wire
transfers, and so on, then, at that point, the bank charges its higher expenses. With
internet banking, these costs are limited.

Lesser errors: Electronic financial diminishes mistakes in normal financial exchanges.

Awful penmanship, mixed-up data or information, and so on can cause mistakes that can
be exorbitant. Likewise, a simple audit of the record or account activity, movement
upgrades the precision of monetary exchanges.

Diminished misrepresentation: Electronic banking gives an advanced impression to all

representatives who reserve the privilege to alter banking exercises. In this manner, the
business has better perceivability into its exchanges, making it hard for any fraudsters
from committing crimes.

Account reviews: Business proprietors and assigned staff individuals can get to the
records rapidly utilising a web-based financial interface. This permits them to audit the
record action and, furthermore, guarantee the smooth working of the account.

Importance to banks:

● Lesser exchange costs: Electronic exchanges are the least expensive methods
of exchange.
● A decreased edge for human blunder: Since the data is handed-off
electronically, there is no space for human mistakes or errors.
● Lesser desk work: Advanced records decrease desk work, paperwork, and make
the cycle simpler to deal with. Likewise, it is ecological.
● Decreased fixed expenses: A lesser requirement for branches which converts
into a lower fixed expense.
 ● More steadfast clients: Since e-banking administrations or services are
convenient to the clients, banks experience higher reliability from their clients.

What is counterfeit money?

Counterfeiting is the oldest technique used by fraudsters to cheat unsuspecting

individuals of their money. Here, the fraudster may handover an imitation currency in
exchange for real bank notes under various pretexts like making change or offering help.
What you can do to avoid being a victim of counterfeit notes:

Rs 2000
The Reserve Bank of India is introducing new design banknotes in the denomination of
₹2000 as part of Mahatma Gandhi(New) Series. The new denomination has motif of the
Mangalyaan on the reverse, depicting the country's first venture in interplanetary space.
The base colour of the note is magenta. The note has other designs, geometric patterns
aligning with the overall colour scheme, both on the obverse and the reverse. The size of
the new note is 66mm x 166mm

1. See through Register

2. Latent image
3. Denominational numeral in Devnagari
4. Mahatma Gandhi portrait
5. Micro letters “RBI” & “2000”
6. Security thread with inscription “Bharat”
7. Guarantee clause
8. Portrait and electrotype watermark
9. Number panel
10. Denomination in numerals
11. Ashoka pillar emblem
12. Intaglio printing
13. Intaglio printing on the lines for visually impaired

Rs 500
The new ₹500 notes in the Mahatma Gandhi (New) Series are different from the present
series in colour, size, theme, location of security features and design elements. The size
of the new note is 66mm x 150mm. The colour of the notes is stone grey and the
predominant new theme is Indian heritage site - Red Fort.

1. See through Register

2. Latent image
3. Denominational numeral in Devnagari
4. Mahatma Gandhi portrait
5. Security thread
6. Guarantee clause
7. Portrait and electrotype watermark
8. Number panel
9. Denomination in numerals
10. Ashoka pillar emblem
11. Intaglio printing
12. Intaglio printing on the lines for visually impaired

Rs 200

Front
Salient features of the New ₹200 Notes
1. See through register with denominational numeral 200,
2. Latent image with denominational numeral 200,
3. Denominational numeral २०० in Devnagari,
4. Portrait of Mahatma Gandhi at the centre,
5. Micro letters ‘RBI’, ‘भारत’, ‘India’ and ‘200’,

6. Windowed security thread with inscriptions ‘भारत’ and RBI with colour shift. Colour of the
thread changes from green to blue when the note is tilted,
7. Guarantee Clause, Governor’s signature with Promise Clause and RBI emblem
towards right of Mahatma Gandhi portrait,
8. Denominational numeral with Rupee Symbol, ₹ 200 in colour changing ink (green to
blue) on bottom right,
9. Ashoka Pillar emblem on the right,
10. Mahatma Gandhi portrait and electrotype (200) watermarks,
11. Number panel with numerals growing from small to big on the top left side and bottom
right side,
12. For visually impaired
Intaglio or raised printing of Mahatma Gandhi portrait, Ashoka Pillar emblem, raised
Identification mark H with micro-text ₹ 200, four angular bleed lines with two circles in
between the lines both on the right and left sides
Reverse
13. Year of printing of the note on the left,
14. Swachh Bharat logo with slogan,
15. Language panel,
16. Motif of Sanchi Stupa,
17. Denominational numeral २०० in Devnagari

CIBIL:

Credit Information Bureau (India) Limited (CIBIL) is a credit bureau or credit information
company, engaged in maintaining the records of all the credit-related activities of
companies as well as individuals, including credit cards and loans.

The registered member banks and several other financial institutions periodically submit
their information to CIBIL. Based on the information and records provided by these
institutions, CIBIL issues Credit Information Report (CIR) and credit score to applicants
and financial institutions.
CIBIL is a credit information database and does partake in any kind of lending decisions.
It provides data to the banks and other lenders to quickly and efficiently filter the loan
applications which they receive in the course of their business.

Product offerings by CIBIL

CIBIL offers three products viz. credit score, a credit report for individuals and credit report
for companies:

Credit score

A credit score refers to a 3 digit numeric value that represents the creditworthiness of an
individual. The creditworthiness ranges between 300 to 900 with 900 being the highest
and 300 being the least. This score is computed with the help of the credit history of an
individual.

Banks and most financial institutions prefer extending credit to an individual whose score
is 750 and more. Individuals with good credit scores are less likely to default on their loan
payments.

Credit report

The credit report contains the credit information that CIBIL fetches from various financial
institutions. This detailed report contains information about an individual’s history of
borrowing and repayment routine, including defaults and delays.

The important parts of this report are credit Score, individual’s personal information,
employment details, contact information and account details.

Credit report for companies

Credit report for companies constitutes details about a company’s credit history. The
several segments in a company credit report speak about potential lenders, existing credit
which the company has, any pending lawsuits and outstanding amount.

A good credit report is essential for approval of any loans, whereas a bad report could
damage/reduce the chances of the loan being granted to the company.

Factors influencing a CIBIL score

Repayment History

Your CIBIL score would tell the loan providers if you are capable of dealing with the debt
burden and whether you can repay the loan obligation. A repayment history with EMI
defaults or late payments could negatively affect your credit score.

Credit Utilisation Ratio

This is another key factor that could impact your CIBIL score. Credit utilization ratio refers
to the total amount of credit that you use against the total amount of credit that you’ve
been authorized.

Financial experts suggest that individuals should try and keep the credit utilization ratio in
the range of 25-30 % for maintaining a good CIBIL score report.

Excess Personal Loans/Credit Cards

Credit cards and personal loans both are unsecured loans. Too many credit cards and a
high amount of personal loans with no secured loans such as an auto loan or home loan
could have a negative impact on your CIBIL score.
So, if you have a balance of both the secured as well as unsecured loans, it might lead
to a positive impact on the CIBIL score.

New Accounts

An increase in the number of credit cards and loans sanctioned to you imply a rise in your
debt burden. In case numerous credit cards and loans are sanctioned over a short time
period, your credit score would be negatively affected.

Building and preserving a good CIBIL score isn’t rocket science, however, people tend to
mess up their credit usage which does substantial harm to CIBIL scores. If you’re mindful
of your own physical health and do everything for keeping yourself healthy, maintain a
financial discipline and you would find that your financial health is healthy too.

ATM:

ATM full form is Automated Teller Machine which is a self-service banking outlet. You can
withdraw money, check your balance, or even transfer funds. Different banks provide their
ATM services by installing cash machines in different parts of the country. You can
withdraw money from any of these machines irrespective of whether or not you are an
account holder in the same bank.

Transactions are either free or bear a nominal charge depending upon the banks. Banks
usually do not charge for the first 3-5 transactions in a month. Once you cross the limit of
free transactions, you may have to pay a nominal charge. Also, some banks levy charges
if you withdraw money from another bank’s ATM of which you are not an account holder.

Types of Automated Teller Machines (ATM)

Automated Teller Machines (ATMs) are mainly of two types. One is a simple basic unit
that allows you to withdraw cash, check your balance, change the PIN, get mini
statements and receive account updates. The more complex units provide facilities for
cash or cheque deposits and line of credit & bill payments.

There are also onsite and offsite Automated Teller Machines: the onsite ATMs are within
the bank premises, unlike the offsite ones which are present in different nooks and
corners of the country to assure that people have basic banking facilities and instant cash
withdrawals if they can’t go to a bank branch.

ATMs can also be categorized based on the labels assigned to them. Some of these
labels are listed below-

● Green Label ATMs: Used for agricultural purposes

● Yellow Label ATMs: Used for e-commerce transactions
● Orange Label ATMs: Used for share transactions
● Pink Label ATMs: Specifically for females to help avoid the long queues and
waiting time
● White Label ATMs: Introduced by the TATA group, white label ATMs are not
owned by a particular bank but by entities other than the bank
● Brown Label Banks: Operated by a third party other than a bank

There are also a few biometric Automated Teller Machines that need fingerprints & eye
scanners to be operated.

NET BANKING:

Net-banking, also known as internet banking, is an electronic system managed by banks

which enables customers to access financial as well as non-financial banking products
online. Earlier, customers had to visit the banks even for a small service. However, after
the arrival of internet banking, almost all the services and products can be accessed
online. From fund transfer to requesting demand draft, net-banking facilities, and all
banking essentials. It is not just convenient but also a secure method of banking.

Features of Net Banking

Given below are some of the key features of Net Banking:

● A secure and convenient method of banking

● Password-protected banking system
● Easy access to financial and non-financial banking products/services
● Access your bank account anytime anywhere
● Track and manage bank balance, last transactions, statements, etc.
● Transfer funds online via NEFT, RTGS, IMPS anytime
● Process bill payments quickly
● Keep a track of payments, personal loans, home loans, business loans, credit
cards, savings account, etc.
● Channelize or cancel automatic payments.

RTGS:

The term real-time gross settlement (RTGS) refers to a funds transfer system that allows
for the instantaneous transfer of money and/or securities. RTGS is the continuous
process of settling payments on an individual order basis without netting debits with
credits across the books of a central bank. Once completed, real-time gross settlement
payments are final and irrevocable. In most countries, the systems are managed and run
by their central banks.

● Real-time gross settlement is the continuous process of settling interbank

payments on an individual order basis across the books of a central bank.
● This system's process is opposed to netting debits with credits at the end of the
day.
 ● Real-time gross settlement is generally employed for large-value interbank funds
transfers.
● RTGS systems are increasingly used by central banks worldwide and can help
minimize the risks related to high-value payment settlements among financial
institutions.

What is the RTGS Minimum and Maximum Limit?

RTGS, as a payment system, is designed for high-value transactions and has a minimum
and maximum limit.
RTGS Minimum Limit: This refers to the minimum amount of money you must transfer
to be eligible for RTGS. The minimum RTGS amount limit is ₹2 lakh.
RTGS Maximum Limit: This refers to the RTGS transaction upper limit. Your transaction
amount should be within this set limit. The upper limit prescribed for RTGS transactions
varies from bank to bank.
There might also be a daily limit set by individual banks to which you need to adhere to.

NEFT:
National Electronic Funds Transfer (NEFT) is a mode of online funds transfer that is
introduced by the Reserve Bank of India (RBI). It quickly transfers money between banks
throughout India. A bank branch must be NEFT-enabled for a customer to be able to
transfer the funds to another party.

What are the permitted timings to make an NEFT transaction?

Earlier, the NEFT clearance would take place subject to specified slots:

● Monday-Friday: 8 a.m. to 7 p.m.

● Saturday: 8 a.m. to 12 p.m.
In December 2019, the Reserve Bank of India (RBI) has introduced the all-new NEFT
payment system that is active and up 24×7 and 365 days a year. The objective behind
this new clearance system is to promote digital transactions and the global integration of
Indian financial markets.

You can place an NEFT request at any point in time. The NEFT request will be sent to a
queue. All the NEFT requests in the queue will be cleared once every hour.

Does NEFT come with a transfer limit?

You can initiate an NEFT fund transfer starting from Re.1. On the other hand, RBI has
not set any maximum limit for the same. When it comes to cash transactions, you can
transfer up to Rs.50,000 per transaction. Also, there is no limit on the total amount you
can transfer. Few banks have set their own upper limit, such as HDFC Bank has set the
upper limit of Rs.25 lakh per day per customer ID via online NEFT.

Are charges applicable to NEFT?

The details related to applicable transaction charges on remitter and receiver ends are
listed below:

● Inward transactions at the recipient bank branches for credit to beneficiary

account—free of cost, no charges for beneficiaries.
● Outward transactions at the transaction initiating bank branches—
transaction charges applicable to remitter

IMPS:
The full-form of IMPS is ‘Immediate Payment Service’. Launched by National
Payments Corporation of India (NPCI), it allows you to transfer funds instantly from
one bank to another and RBI-authorized Prepaid Payment Instrument Issuers (PPIs)
in the country. Available 24*7, it can be accessed through various channels such as
SMS, mobile banking, Net Banking, or ATM. If you want to send money, you can use
a account number and IFSC code or mobile number and MMID.

As per National Payments Corporation of India (NPCI) circular, the maximum

amount that can transferred is Rs 2 Lakhs per transaction/DAY

What are the Features and Benefits of IMPS?

The features and benefits of IMPS which makes it a popular mode of fund transfer are
mentioned below:

1) Instant Fund Transfer

Staying true to its name, IMPS allows you to transfer funds in an instant. This is because
IMPS transactions occur individually and not in batches. You can avail IMPS via online
banking, mobile phone, ATM, or SMS.

2) 24x7 Availability

IMPS is available 24x7 throughout the year, even on bank holidays. You can use the
service to transfer funds anytime and from anywhere.

3) Instant Notifications

Both you and the beneficiary are notified when the amount is debited from one bank
account and credited to the other. As a result, you do not need to worry about whether
the transaction was successful or not.

4) Versatility of Mode
IMPS can be carried out both person to person and person to merchant. All you need is
the mobile number or the bank account details.

5) Safe and Secure

IMPS is carried out over encrypted servers, making the transfer of funds safe and secure.
Payments occur electronically using multi-step verification.

6) Minimum Information Required

It saves time and effort as it does not require you to fill up lengthy forms with confidential
information. All you need is the beneficiary’s name, mobile number, and MMID.
Alternatively, you can transfer funds via IMPS using just the beneficiary account number
and IFSC Code.

7) Multiple Applications

Along with immediate transfer of funds, IMPS also allows you to pay insurance premiums,
utility bills, ticket charges, fees, online purchases, etc.

8) Cost Efficient

Banks charge online a minimal amount for availing IMPS facility. In some cases, these
minimal charges too are waived off for transactions. As a result, it is one of the most cost-
efficient means of transferring funds.

What Details are Required for IMPS?

If you wish to use IMPS mobile banking to send money, you will need to use the MMID
(Mobile Money Identifier) and an MPIN to get registered. MMID is a unique seven-digit
code linked to your mobile number that is generated once. You would also need to enter
the IMPS beneficiary details that include the beneficiary’s mobile number and MMID.
For fund transfer, you can also use a combination of the IMPS account number and IFS
Code or mobile number and MMID. Both yours and the beneficiary’s details will be
required for the purpose. If you are using an ATM to avail IMPS, you would need to
authenticate using your ATM PIN.
APP BASED PAYMENT SYSTEM:
A mobile wallet or e wallet app or e wallet is an app that consists of your debit and
credit card information which helps the users to pay for goods and services
digitally using their mobile devices. Popular online payment apps or payment apps or
e wallet list in India include:
PhonePe
Google Pay
Paytm
Amazon Pay
FreeCharge
JioMoney
BHIM
Mobikwik
Airtel Money
Pockets By ICICI Bank

Advantages of app based payments

As a small business owner, you stand to gain many benefits when you accept mobile
payments. They include:

● Convenience. Mobile payments eliminate a barrier to finalizing a customer’s

purchases. Customers can pay conveniently by tapping a phone or credit card at
a point of sale, or they can make online transactions using their payment apps.
● Speed. Financial institutions process mobile payments in the blink of an eye. This
makes mobile checkout as fast as a credit card transaction—if not faster.
 ● Popularity. More customers are spending more money using mobile payments.
In 2021, global consumers spent $1.786 billion via mobile payments. Financial
analysts expect this figure to more than triple within the next five years.
● Security. Mobile payments are among the most secure forms of commerce. That’s
because they’re performed on mobile devices that tend to require some form of
authentication, typically in the form of a fingerprint, facial recognition, or a
passcode. The devices also encrypt their transmissions, giving thieves a very
minimal chance of intercepting customer data.

Disadvantages of mobile payments

While mobile payments offer many benefits to merchants and consumers, they come with
a few drawbacks.

● Transaction limits on peer-to-peer transactions. Many mobile wallet providers

place a limit on their users’ person-to-person transactions, which means
merchants who want to receive payments from an app like Venmo may not be able
to make sales above a certain dollar amount. This boundary helps protect all
parties from theft and fraud. However, mobile wallets do not add purchase limits
to retail purchases made at tap-to-pay terminals. Retail shoppers who link a credit
card to their mobile wallet app will not experience any app-imposed purchase limits
when shopping in a store.
● Specialized payment terminal needed for mobile wallet transactions.
Merchants need a modern payment terminal to accept tap-to-pay transactions in
a brick-and-mortar store—an expense that not all small businesses can afford.

BANK DRAFT and PAY ORDER:

Pay order can be cleared in any branch of the bank in the same city whereas
demand drafts are cleared at any branch of the same bank. Demand drafts can be
used to make payment to a different state as well and in case a person has to make
payment within the city then they should go for the pay order

Demand Draft

Demand Draft also known as DD is a type of pre-paid negotiable instrument in which a

drawee bank usually becomes a guarantor in order to make full payment when this
instrument is presented. A unique feature of Demand Draft is that it cannot be dishonored
as the payment is made beforehand. Demand Drafts are basically used to make
payments to anyone outside a city.

Demand draft can be cleared at any branch of the same bank. Demand drafts are
prepared by a bank official and it is even signed by them so the chances of default are
not there at all. In fact it is not even mandatory to have a bank account in any particular
branch from where a person is getting a Demand Draft issued. In order to receive the
payment the beneficiary has to either deposit the Demand Draft in his or her bank account
or get it collected from the branch which has issued the Demand draft.

In order to issue a Demand Draft, the bank usually deducts some amount from the bank
account of a person who had requested for preparing the demand draft. So when the
demand draft is presented for clearing it is the duty of the banker to make the payment.
The demand draft can be prepared by paying cash to the bank as well but if the demand
draft value exceeds Rs. 50,000/-, then the payment should be in cheque only.

The applicant has to provide his PAN mandatorily in situations where the value of the
demand draft is more than Rs. 50,000/-. Demand drafts are usually prepared in Indian
currencies but in case someone is required to make a payment in foreign currency then
the draft can be prepared for the same. In fact demand drafts are an easy way of giving
payments abroad without any risk of non-clearance of a DD.

Pay Order

Pay order is a financial instrument which is issued by the bank on customer’s behalf giving
an order to pay a particular amount to a particular person in a same city. Payment orders
are not negotiable and even this thing is printed in words on the instrument. In pay order
as well there is no chance of dishonoring as the amount is already paid hence pay order
is also a pre-paid instrument. The validity of pay order is for 3 months from the day it has
been issued. Pay orders are also known as banker’s cheque.

A pay order is always payable by the bank which issues it and they are applicable for
payment in the same city. A pay order once made cannot be canceled if the other party
is in a different city. These orders are usually acknowledged by the bank which gives a
guarantee that the payment will be made.

Differences between Demand Draft and Pay Order

Both these instruments, i.e. demand draft and pay order are basically required or used
for the same purpose but still are different to each other. The main differences between
them are listed below:

1. Pay order also called Banker’s Cheque is a type of payment which gets cleared in
the same branch of the bank which issued it where demand drafts are a mode of
payment which gets cleared in any branch of the issuing bank.
2. In pay order, it is pre-printed that this instrument is non-negotiable whereas
demand draft is a type of negotiable instrument. Basically a negotiable instrument
is a type of document which guarantees the payment of a particular amount of
money paid to one person from the other. It is a transferable and signed document
which promises to pay the amount on demand at any particular time.
 3. Pay order can be cleared in any branch of the bank in the same city whereas
demand drafts are cleared at any branch of the same bank. Demand drafts can be
used to make payment to a different state as well and in case a person has to
make payment within the city then they should go for the pay order.

Both these financial instruments are basically a secure mode of payment to any third
party. These mechanisms of payment usually require visiting the branch of the bank. Still
these instruments are required as many colleges and schools prefer these instruments
compared to cheques as there is no possibility of dishonoring these instruments.

BANKING COMPLAIN AND OMBUDSMAN:

Banking Ombudsman is a body created by the RBI to take care of the banking complaints
of the general public in India. RBI appoints a senior official or Ombudsman who addresses
and resolves all the complaints and grievances of the customers.

The Banking Ombudsman is basically that has been created by RBI to look after banking
related complaints that general public may need assistance with. The Ombudsman is a
senior official, who has been appointed by the Reserve Bank of India to address
grievances and complaints from customers, pertaining to deficiencies in banking services.
It covers all kinds of banks including public sector banks, Private banks, Rural banks as
well as co-operative banks. It was originally established in 1995, it went through some
major revisions in 2006 which covered transactions pertaining to complaints of ATM
cards, debit cards and credit cards, deduction of service charges by banks without prior
intimation, unfair practices of banks and non-compliance by direct sales agents (DSA) of
banks for the services that were promised while opening the bank account and more. It
was last amended in February, 2009 as of December, 2015 to meet the deficiencies that
arise from online banking as well.

How Effective is the Banking Ombudsman?

As of 2015, this body covers almost all kind of complaints for banking services. The team
received 79,266 complaints in the year 2009-2010 among which around 94% were
handled and only 5-6% of the complaints remained pending for more than quarter of a
year. There are currently 15 Banking Ombudsman in India. The customer can complain
to the one which comes under the jurisdiction of the Bank location, which means if your
bank is in Bangalore, you can complain to the BO from Bangalore region. If your bank or
you are dissatisfied with the decision given by the Banking ombudsman, the case can be
forwarded to the Appellate Authority within 30 days of BO decision, which is a Deputy
Governor of the RBI .

What are the types of complaints accepted by the banking ombudsman?

Some of the assumably trivial issues such as rude behaviour from the bank officials,
delays in the disbursing of loans, or even forcing customers to buy insurance policies for
processing loans etc., are all addressed by this organization and the process of
complaining simple requires filling up a form online or sending in a filled form to a postal
address.

You could even be compensated Rs. 1 lakh for being harassed because of any issue or
that you may have undergone through mental agony. Some of the possible issue where
you could complain at to the Banking Ombudsman include:

● Delay in providing any service

● Charging higher rate of interest linked to BPLR on Housing Loan
● Levying of charges without any notice or Information.
● Any Loss suffered because of lack of coordination from Bank side
● Fraudulent transactions against lost credit card
● Unreasonable credit card charges
● Cheque lost in transit by the bank
● Non-updation of CIBIL records
● Fraudulent transfer of funds by using net banking
● Closure of any account with providing any information or reason
● When bank demands unreasonable proofs for opening of account
● Loss of cheque from Cheque drop box
 ● Change in terms and conditions without notice or valid reason
● Mis-selling of Insurance products
● Forcing customers to take insurance policies for processing Loans
● Casual approach from Bank on performing its duties
● Rejection of Loans on unfair grounds
● Harassing customer or misbehavior for any reason

How to lodge the complaint ?

There are two ways of filing your complaint:

Online Complaint: You can file a complaint to Banking ombudsman on the Internet by
filling up the form on their website. Once you are done filling up the form, you may require
to upload proofs such as bank rejection letter, bank’s reply or anything else that is in a
PDF or TXT format.

Offline Complaint: You need to download the form from the Internet and fill up the
complaint. You simply need to include your contact information including your name and
address of the bank against which you are lodging the complaint, documentary evidence
and the compensation that you require. When done, filling up the form, you can send it to
one of the 15 Banking Ombudsman address which comes under your jurisdiction.Finally,
if you have the need or feel to make use of the this organization, do not hesitate if you
think that you have a clear situation. However, note that your case will be investigated
and if you are filing a false case it will lead to sheer embarrassment. a lot of people are
not aware of this body and hence feel and sit helpless. Some minute issues can be solved
easily through this body and hence is as useful as it sounds.

Can my complaint be rejected by the Ombudsman?

Yes, a complaint can be rejected by the ombudsman if:

 ● The Bank has not been approached for redressal of the grievance.
● No complaint has been made within one year from the date of receipt of the
reply of the bank or if no reply is received, and, the complaint to Banking
Ombudsman is made after the time period of one year and one month from
the date of complaint to the bank.
● The subject matter of the complaint is pending for disposal / has already
been dealt with at another forum
● Frivolous or vexatious complaints.
● If the complaint has the same subject matter that was settled in the past
through the office of the Banking Ombudsman in any proceedings.

Points to remember

● Limit on the amount of compensation (Award): The amount, to be paid by

the bank to the complainant (The person registering the complaint) by way
of compensation for any loss suffered by the complainant is the lower of

○ Loss suffered due to any act or omission of the Bank

○ ₹ 20 lakhs (₹ Two Million)

● In case of mental agony and harassment: The Banking Ombudsman may

award compensation not exceeding ₹1 lakh (₹ One Hundred Thousand) to
the complainant. While passing an award (giving compensation), the
Banking Ombudsman will consider the following factors

○ Time lost by the complainant

○ Expenses incurred by the complainant
○ Harassment and mental agony suffered by the complainant

● After a receipt of complaint, the Banking Ombudsman will try to settle the
complaint through conciliation (agreement) between the aggrieved parties.
If a complaint is not settled by an agreement within a period of one month,
 the Ombudsman proceeds to pass an award. However, before doing so,
reasonable opportunity of being heard is given to the complainant and the
Bank.
● If one is unhappy with the decision of the Banking Ombudsman, an option is
given to file an appeal with the Appellate Authority within a period of 30 days
from the date of the receipt of award. Further, if the Appellate Authority is
satisfied an extension of another 30 days may be given.