Financial Literacy Unit 5/8

Banks

Financial institutions that accept deposits and lend funds.

Encourage savings

Encouraging people's saving habits, making money available for productive usage.

Connect savers & borrowers

Banks serve as a link between those who have surplus assets and those who need funds for a variety of commercial purposes.

Facilitate business transactions

Business transactions are facilitated by banks using cheques instead of money for receipts and payments.

Source to funds

Banks make short- and long-term loans and advances to individuals and businesses.

Consultancy

Banks increase their activities while also providing customers with advisory services related to industry, income, trade, and investment.

Bank

A financial institution that can legally accept deposits and make loans.

Types of banks

Retail banks, commercial/corporate banks, and investment banks are all distinct subsets of the banking industry.

Commercial Banks

They are governed by the Banking Regulation Act of 1949, and their business model is profit-oriented.

Public Sector Banks

More than 75% of the country's banking industry is owned and operated by nationalised banks.

Private Sector Banks

Private shareholders own most of the company.

Foreign Banks

Foreign banks with headquarters abroad have branches in India.

Regional Rural Banks

Operate in many Indian states to serve remote customers and loan to rural small farmers.

Small Finance Banks

Reaching out to the unbanked population in distant and underdeveloped locations.

Payments Bank

Accept a limited deposit, which is now capped at Rs. 200,000 per person but could be raised in the future. These banks are unable to provide loans or credit cards.

Co-operative Banks

Governed by the Cooperative Societies Act of 1912, controlled by an elected managing committee, and cater to its members' financial requirements on a mutual basis.

Urban Co-operative Banks

fundamental cooperative banks in urban and semi-urban areas. Small borrowers and enterprises oriented around towns, neighbourhoods, and workplace groupings

State Co-operative Banks

included in the short-term cooperative credit framework.State governments register and regulate these organisations

Retail banking

Everyday banking between people and their banks, typically includes a central office and many branches in various locations.

Savings account

Encourage the general population to save money with a low interest rate.

Deposits

Accept deposits from the general population.

Loans

Banks employ deposits from the public to make loans to businesses and individuals to pay their financial responsibilities.

Investments

Helps banks invest and trade stocks.

Insurance

Insurance products offered to customers either directly or through a partnership known as Bancassurance.

Cards

Credit, debit, and prepaid cards that use secure PINs and OTPs for secure payments.

Forex

Foreign Exchange (forex or FX) is the trading of one currency for another, handled mostly by retail banks.

Payments

Mechanisms to enable the exchange of money, which supports the expansion of trade, aids economic development, and allows for greater flexibility with lower transaction costs and security.

Business Banking

Banking services that are exclusively customised for businesses.

Business financing

Banks provide fixed-term loans, long-term loans, asset-based loans, and short-term loans based on the firm's capital requirements.

Cash management

This includes services like professional management of receivables, payables, and cash on hand.

Wholesale Banking

Sale of banking services to institutional clients such as banks, financial institutions, government agencies, companies, and international trade finance businesses.

Underwriting

A transaction in which banks enter into a contract with a firm to take on the entire or a portion of the offered shares or debentures that are not subscribed for by the public.

Merger and acquisition (M&A)

Merger and acquisition (M&A) consulting services offer advice to other businesses looking to buy, sell, or restructure their businesses

Advisory Services

Wholesale bankers provide tailored solutions to their clients' financial matters.

Wealth Management

A subset of financial services that focuses on the investment needs of wealthy clients.

Agency Services

The bank acts as a go-between for its customers and government and business organisations.

Periodic Payments

Banks make recurring payments on behalf of their customers, such as power bills, water bills, insurance premiums, monthly installments, school fees, and so on.

Periodic Collection

Banks are also paid on a regular basis on behalf of their clients, who include government agencies, individuals, and corporations.

Fund Transfer

Banks assist consumers move payments via checks, drafts, and other methods.

Cheques Negotiation

Banks mediates as an agent between two parties for the clearance of cheques.

Portfolio Management

Portfolio management helps banks trade stocks.

Advisory Services

Banks will occasionally facilitate as trustee, advisor, or agent for their high-profile clients.

Utility Services

Commercial banks provide a wide range of general utility services.

Safe deposit locker

The general public can use a safe deposit box to store their valuables such as securities, gold, silver jewellery, and so on.

Letters of credit

Commercial banks issue letters of credit to traders for credit purchases.

Social welfare programs

Banks also help to implement several government initiatives and participate in a variety of social activities, literacy drives, and awareness campaigns.

Modern services

current services are e-banking services that do not follow the old conventional approach but rather the new current technological way

Private banking

A banking business that provides investing, banking, and other financial services to extremely affluent individuals and their families.

Online banking

Lets clients view their account information online.

Mobile Banking

Uses a mobile phone to check balances, make payments, apply for credit, and other financial tasks.

Priority banking

Privilege Banking, is a new concept in Indian banking which provide specific services to a restricted group of clients known as priority customers

Bank Deposit Accounts

Convenient for people who have excess money and savings to deposit it with a bank.

Saving Bank Account

Individuals who desire to save little amounts of money from their current earnings should open

Fixed Deposit

Repayable after a certain time and best for banks

Current Account

Can be used to withdraw balances at any time.

Recurring Deposit

A recurring deposit (RD) account is one in which the depositor is obligated to deposit money on a regular basis

Public Provident Fund Account (PPF)

Formed in India in 1968 with the purpose of mobilizing small deposits through investment with a return.

National Savings Certificates (NSC)

fixed-income investment instrument that may be obtained from any post office branch.

What are the two ways to open a bank account?

Online and offline

What are the benefits of having a bank account?

Withdrawal and deposit of funds, government subsidies, tracking money inflow/outflow, bill payment, safety, loans/insurance, investment growth.

What are the four categories of bank accounts?

Savings accounts, recurring accounts, fixed deposit accounts, and current accounts.

What are the steps to open a bank account?

Deciding the bank account type, approaching the bank, completing the application, providing documentation, verification, and depositing funds.

What does 'nomination' mean in banking?

A nomination in banking refers to an account holder's right to nominate one or more people who will receive the money if the account holder dies.

What documents are accepted as proof of age and identity when opening a bank account?

PAN card, Voter ID, Passport, Driving licence or Aadhaar card.

What documents are accepted as proof of address when opening a bank account?

Driver's licence, utility bill, voter ID, or passport.

What document is needed as proof of business existence for a current account?

Registration certificate issued by relevant authorities.

What is a Permanent Account Number (PAN)?

Unique 10-digit alphanumeric number provided to Indian taxpayers by the Income Tax Department.

When selecting a bank, what factors should be considered?

Accessibility, mobile banking, internet banking.

What documents qualify as proof of identity for opening a savings account?

Passport, Driving Licence, Voters’ Identity Card, PAN Card, Aadhaar Card issued by UIDAI, NREGA Card.

What is the average quarterly balance required for opening a current account?

Rs 10,000 and Rs 50,000

What documents are accepted as primary proof for sole proprietorships?

Registration Certificate (RC), Trade License, Labour License, Liquor License, Drug License.

What documents are accepted as secondary proof for sole proprietorships?

PF/ESIC registration certificate, utility bills, a certificate confirming the existence of your business by the Panchayat/Ward Commission

What documents are required from LLPs?

Certificate of Incorporation, LLP agreement, PAN, and identity proofs of all the partners

What documents are required for opening a current account for a company?

A Certificate of Incorporation, Board Resolution for opening a Current Account, Memorandum of Association and Articles of Association.

What documents are accepted as proof of identity for opening a fixed deposit account?

PAN Card, Voter ID Card, Aadhar Card, and Passport

What activities require a PAN card?

Purchase a car, property, participate in the stock market, or exchange your Indian rupees for foreign cash.

According to the Foreign Exchange Management Act, what transactions require a PAN card?

All transactions involving foreign currency.

Under which act is a PAN card required to purchase listed or unlisted securities?

Securities Contracts (Regulation) Act of 1956

What two types of documents are required for KYC (Know Your Customer) verification?

Identity and address verification.

What document must be uploaded for Aadhaar-based KYC?

Original Aadhar card.

What is one of the main functions of KYC?

Examining consumer-related money laundering threats.

Why is there no requirement for physical documents for eKYC verification?

There is no requirement for physical documents because it is done digitally

What are the two approaches to the eKYC process for online applications?

Aadhaar OTP and Aadhaar Based Biometric

Loan

A liability, which can be for a short or long term, advanced by a bank and repayable after a specified period.

Term Loans

Long-term loans raised for a duration of 3 to 10 years from financial institutions, carrying a floating rate of interest and pre-determined maturity period.

Short-Term Loans

Borrowings that businesses undertake for a short period to address their immediate monetary needs, often through bank overdrafts.

Floating Interest Rate

An interest rate that changes according to the changing market conditions.

London Interbank Offered Rate (LIBOR)

An estimated interest rate calculated by taking the average of the present interest rate charged by main well-known banks in London, serving as a benchmark for multiple financial instruments.

Mumbai Interbank Offer Rate (MIBOR)

An interest rate at which banks borrow unsecured loans from each other, used as a reference rate for corporate debentures and other financial agreements.

Money Market Instruments

Short-term financing instruments with a maturity of less than one year, aiming to increase a business’s financial liquidity.

Commercial Paper

A money market instrument used by companies to address short-term working capital requirements; it is unsecured and typically used by large companies.

Certificate of Deposits (CDs)

Negotiable term deposits accepted by commercial banks, freely negotiable and issued in high amounts.

Credit Rating Agencies (CRAs)

Agencies that rate and evaluate the creditworthiness of debt securities and their issuers, providing credit risk ratings based on qualitative and quantitative analyses.

Payday Loans

Loans where the borrowing amount is decided based on the borrower's income and repaid upon the receipt of the next income or paycheck, often carrying a high interest rate.

Medium Term Loans

Loans with a repayment period of two to five years, suitable for small business owners who want to expand their business.

Long-Term Loan

A loan that has a repayment period of more than three years, with examples including home loans, car loans, and education loans.

Micro Finance

The financial services provided to low-income groups or individuals who do not have access to traditional financial services, including savings accounts and micro insurance.

Accrued Interest

The interest amount that has been incurred on a financial obligation like a loan but has not been paid out yet.

Collateral

An asset that a borrower provides to the lending institution as a guarantee of repayment.

Credit Score

A prediction of the borrower’s credit behavior, indicating the probability that the borrower will repay a loan on time.