Savings Account:
An interest-bearing deposit account maintained at a bank or other financial institution is referred to as a savings account. While these accounts generally offer a moderate interest rate, their security and dependability render them a favourable choice for storing cash that one desires to have readily accessible for immediate requirements. While savings accounts might impose certain restrictions on the frequency of fund withdrawals, they generally provide remarkable flexibility that makes them well-suited for emergency fund accumulation, short term savings for objectives such as car purchases or vacations, or even the transfer of excess funds from checking accounts to savings accounts, where they can accrue interest. The amount deposited in savings accont could be withdrawn by cheque, ATM card or a challan (withdrawel slip). The balance in savings bank account could be used to make online purchases, online bill payments and payment at point of sale terminals through any of the digital payment mode.
Recurring deposits:
A recurring deposit account is a type of account offered by banks or post offices, in which a depositor regularly contributes a certain sum of money on a monthly basis for a specified duration, often ranging from one to five years. This format is designed for those who wish to make regular monthly deposits with the intention of accumulating a large quantity of money after a certain number of years. The modest monthly contributions in the Recurring Deposit scheme enable the saver to accumulate a substantial amount upon maturity. The interest rate for this type of deposit arrangement is calculated based on quarterly compounding.
An average fixed deposit allows an individual to assign a certain amount of money for a set period of time, which may be withdrawn at a later date. However, you are not authorised to handle or modify the total sum or potentially add to it. The repeating deposit functions by a similar procedure. The primary distinction in this type of plan is in the requirement to regularly deposit a certain amount into your account, which you determine at the time of opening your RD account, on a monthly basis. This sum may be relatively insignificant and have minimal impact on your finances. Upon reaching maturity, your principal amount will have significantly increased, including the accrued interest.
To begin the process of creating a Recurring Deposit (RD) account, just visit a bank or post office and complete the necessary application form. Additionally, you will be required to submit official papers such as a PAN Card and evidence of residence. Furthermore, you must make the initial deposit for the first month to the bank or post office.
An individual has the option to initiate a recurring deposit for a minimum duration of 6 months or in increments of 3 months, with a maximum term of 10 years. The interest rates offered for a Recurring Deposit are similar to those provided for fixed deposits. Senior citizens are eligible for an additional interest rate of 0.5%, similar to the benefits provided by India Post and other banks. Other banks additionally offer a grace period of 5 days.
Fixed Deposits
A fixed/ term deposit refers to a predetermined investment where a certain amount of money is deposited into an account at a financial institution for a specified period of time. Fixed deposits generally carry high rate of interest compared with savings or recurring deposits. It is important for the investor to comprehend that when purchasing a term deposit, they will only be able to retrieve their cash upon the completion of the agreed-upon term. Under certain circumstances, the account holder may grant the investor the option of early termination or withdrawal, provided that they provide advance notice of several days. Furthermore, an additional charge will be imposed for terminating the agreement before the agreed-upon period.
Deposit Insurance
The primary purpose of a deposit insurance scheme is to serve two distinct yet interrelated goals within the broader context of the financial safety net. One purpose is to support the stability of the financial system by acting as a supplementary lender of last resort alongside the central bank. The second objective is to ensure a baseline level of safeguarding for the financial assets of the typical family in case of a bank’s collapse. Deposit insurance is beneficial as the typical depositor lacks the expertise or means to oversee bank operations. 8 A further factor to take into account is that the financial assets of an ordinary family, or one with below-average resources, are frequently not well spread throughout different investments. Typically, households tend to possess a limited number of financial assets and mostly maintain their financial resources in basic bank accounts at one or two institutions. The occurrence of a bank failure has the potential to cause substantial adversity. The objective of deposit insurance may be defined as safeguarding the monetary assets of the average household and giving them a secure method of conducting financial transactions. In this context, it is indistinguishable from any other type of insurance. Deposit insurance ensures that depositors will recover a minimum amount of their deposit, regardless of the bank’s asset quality upon
liquidation, in contrast to conventional bankruptcy law. Furthermore, the deposit insurance scheme might be structured to expedite the disbursement of monies to depositors, beyond the typical timeline dictated by generic bankruptcy legislation.
Credit-Debt Management
There are many people that want financial assistance in order to purchase a home, automobile, or pay for their children’s education. Credit is another word for this. There is typically a distinction made between “good debt” and “bad debt” among financial professionals. A beneficial loan is one that serves as an investment in something that, over the course of time, generates more value or wealth. Bad debt is defined as borrowing money with the intention of purchasing an asset that will value almost soon.
Cheque
A check is a written directive that is issued to a bank or other financial institution to pay a specified sum from the account of the cheque holder to the person who presents the cheque. The term “drawer” refers to the person who both writes the check and gives instructions to their bank on the transfer of cash. Payee is the term used to refer to the person who really receives the money. When the cheque is deposited or cashed by the payee, the bank that issued the cheque will pay or transfer the amount that was indicated on the cheque.
Pass book
A bank passbook is a tangible ledger maintained by individuals who own bank accounts. It documents all banking transactions on paper, including their specific data. When recording debit transactions, it is necessary to include comprehensive information on the payment, such as the name of the recipient, the payment method used, and the name of the bank responsible for the transfer. Additionally, you would document any pertinent data on direct debit and pay order transactions, along with information regarding self-payments made to other accounts. Similarly, in the case of credit transactions, one would utilise their passbook to meticulously record deposit interest, revenues from third parties, and cash deposits. All loan-related information, including the payment method, will be provided in this section.
1.2 MAIN STREAM INSTITUTIONS
1.2.1 Public Sector banks
Public sector banks are owned and operated by government with minimum 51% stake in the ownership. Currently, there are 12 public sector banks in India.
| 1. Bank of Baroda 2. Bank of India 3. Canara Bank 4. Central Bank of India 5. Indian Bank 6. Indian Overseas Bank 7. Bank of Maharashtra 8. Punjab & Sind Bank 9. Punjab National Bank 10. State Bank of India 11. UCO Bank 12. Union Bank of India |
1.2.2. Private sector banks in India
Private sector banks are owned and operated by private parties in India.
| OLD PRIVATE SECTOR BANKS | |
| 1 | City Union Bank Ltd. |
| 2 | ING Vysya Bank Ltd. |
| 3 | SBI Commercial & International Bank Ltd. |
| 4 | Tamilnad Mercantile Bank Ltd. |
| 5 | The Catholic Syrian Bank Ltd. |
| 6 | Dhanlaxmi Bank Ltd |
| 7 | The Federal Bank Ltd. |
| 8 | The Jammu & Kashmir Bank Ltd. |
| 9 | The Karnataka Bank Ltd. |
| 10 | The Karur Vysya Bank Ltd. |
| 11 | The Lakshmi Vilas Bank Ltd. |
| 12 | Nainital Bank Ltd. |
| 13 | The Ratnakar Bank Ltd. |
| 14 | The South Indian Bank Ltd. |
| II | NEW PRIVATE SECTOR BANKS |
| 15 | Axis Bank Ltd. |
| 16 | Development Credit Bank Ltd. |
| 17 | HDFC Bank Ltd. |
| 18 | ICICI Bank Ltd. |
| 19 | Indusind Bank Ltd. |
| 20 | Kotak Mahindra Bank Ltd. |
| 21 | YES Bank |
| 22 | Bandhan Bank Ltd |
| 23 | IDFC Bank Ltd |
1.2.3. Co-operative banks
The primary objective of the rural co-operative credit system is to facilitate the provision of loans to the agricultural sector. The system functions with a two-tier structure consisting of Primary Agricultural Credit Societies at the village level, and State Cooperative Banks at the state level. Urban Cooperative Banks (UCBs) provide financial services to consumers residing in urban and semi-urban regions. The Government of India, the concerned State Government and the bank, which had sponsored the RRB contributed to the share capital of RRBs in the proportion of 50%, 15% and 35%, respectively. The area of operation of the RRBs is limited to notified few districts in a State. As a result of the amalgamation, the number of the RRBs has been reduced from 196 to 56 as on 31 March 2015. Amalgamation of South Malabar Gramin Bank (SMGB) and North Malabar Gramin Bank (NMGB) to form a single entity known as Kerala Gramin Bank. The new entity, sponsored by Canara Bank, have its head office at Malappuram.
1.2.4 Regional Rural banks
The RRBs mobilise deposits primarily from rural/semi-urban areas and provide loans and advances mostly to small and marginal farmers, agricultural labourers , rural artisans and other segments of priority sector. As a result of the amalgamation, the number of the RRBs has been reduced from 196 to 56 as on 31 March 2015. Amalgamation of South Malabar Gramin Bank (SMGB) and North Malabar Gramin Bank (NMGB) to form a single entity known as Kerala Gramin Bank. The new entity, sponsored by Canara Bank, have its head office at Malappuram.
1.2.5 Payment Banks
The objective is to enhance financial inclusion by offering small savings accounts and payment/remittance services to migrant labourers, low-income households, small businesses, and other unorganised sector entities. This will be achieved by facilitating secure, technology driven transactions for high-volume, low-value deposits and payments/remittances.
Characteristics & Functions:
o Acceptance of demand deposits include the acceptance of current deposits and savings bank deposits from individuals, small enterprises, and other entities.
o It is imperative to refrain from accepting any Non-Resident Indian (NRI) deposits. o The deposits collected by the payments bank that meet the requirements would be protected by the deposit insurance programme offered by the Deposit Insurance and Credit Guarantee Corporation of India (DICGC).
o Payments banks have the main purpose of offering payment and remittance services, as well as demand deposit products, to small businesses and low-income households. Initially, these banks were limited to holding a maximum balance of Rs. 100,000 per individual customer. However, this limit has now been increased to Rs. 2 lakhs.
o The payments bank will be required to conduct its own Know Your Customer (KYC), Anti-Money Laundering (AML), and Combating the Financing of Terrorism (CFT) procedures, similar to any other financial institution.
o Provision of ATM / Debit Cards. Payments banks, nonetheless, are unable to issue credit cards.
o Payments and remittance services are available through several channels, such as branches, Automated Teller Machines (ATMs), Business Correspondents (BCs), and mobile banking.
o The payment and remittance services encompass the collection of monies through many channels such as branches and business correspondents (BCs), as well as the disbursement of cash through branches, BCs, and automated teller machines (ATMs). Under the existing instructions published under the PSS Act, cash-out is also allowed at Point-of-Sale terminal sites.
o Payments banks can be members of any card payment network (other than credit cards) that is permitted under the PSS Act.
o The issuance of Prepaid Payment Instruments (PPIs) is carried out in accordance with the instructions provided periodically under the Payment and Settlement Systems (PSS) Act.
o Online banking
o In order to distinguish itself from other banks, the payments bank must incorporate the term “Payments Bank” into its name.
o The payments bank is prohibited from engaging in lending operations.
| 1. Airtel Payments Bank |
| 2. India Post Payments Bank |
| 3. Fino Payments Bank |
| 4. Jio Payments Bank |
| 5. Paytm Payments Bank |
| 6. NSDL Payments Bank |
1.2.6 Small Finance Bank
These are financial institutions specifically designed to create a sustainable business model that addresses the financial requirements of marginalised segments of society. The main focus of the small finance bank will be on core banking activities such as accepting deposits and providing loans to individuals and businesses that have been neglected or underserved, including small business owners, small-scale farmers, micro and small enterprises, and unorganised sector organisations. Small Finance Banks (SFBs) are a specific type of financial organisation that offers financial services to areas in India who lack access to banking services. Small Finance Banks (SFBs) serve specific segments such as tiny business entities, micro and small companies, small and marginal farmers, and the unorganised sectors. These banks engage in fundamental banking operations, such as providing loans and receiving deposits, similar to commercial banks. India now has 10 operating Small Finance Banks (SFBs).
Objectives:
o The objective is to enhance financial inclusion and support small business entities, small-scale farmers, micro and small businesses, and unorganised sectors through the use of advanced technologies at a reasonable cost.
o To provide precise data on about 90% of small enterprises that lack any affiliation with formal banking institutions.
o The objective is to find and enhance the availability of financial services to underserved segments that are overlooked by both private and public sector banks.
| SMALL FINANCE BANKS OPERATING IN INDIA |
| 1. AU Small Finance Bank |
| 2. Capital Small Finance Bank |
| 3. Equitas Small Finance Bank |
| 4. ESAF Small Finance Bank |
| 5. Fincare Small Finance Bank |
| 6. Jana Small Finance Bank |
| 7. North East Small Finance Bank |
| 8. Suryoday Small Finance Bank |
| 9. Ujjivan Small Finance Bank |
| 10. Utkarsh Small Finance Bank |